India debut 50-year bond fully sold on increasing insurer demand

By Malavika Kaur Makol and Ronojoy Mazumdar

India’s auction of the debut 50-year bond met with firm demand Friday, underscoring growing interest from insurance and pension funds for ultra-long papers.
 

The government sold Rs 10,000 crore ($1.2 billion) of the 2073 bond at a cutoff yield of 7.46 per cent, the Reserve Bank of India said in a statement. That’s lower than the 7.48 per cent forecast in a Bloomberg survey. Investors, including insurers, probably lapped up the paper as they had expressed strong interest before the auction to lock in higher yields to take care of long-term commitments. 

The nation’s burgeoning life insurance and pension fund industries, driven by an expanding middle class, are changing the landscape for India’s $1 trillion sovereign debt market. India’s yield curve has been nearly flat even amid record borrowing by the government as insurers stepped up purchases of long-term bonds.

Issuance of long-term paper was a very specific demand that has was being made to RBI for a long time, said Umesh Tulsyan, managing director at Sovereign Global Markets in Delhi. “If the response is good, RBI will definitely continue offering papers in the ultra-long segment.”

The sale of long-term bonds may help the government elongate the tenure of debt sold and keep its interest costs under control. Today’s cutoff came in lower than 7.54 per cent yield for the 40-year paper auctioned last week. 

The government plans to sell Rs 30,000 crore of the 50-year bond in the October to February period. 

Over one-third of the government’s fiscal second-half bond supply is in papers maturing in 30-50 years. The Reserve Bank of India in September said it plans to add the 50-year bond in response to market demand for ultra-long papers, extending the nation’s yield curve.