Key Takeaways
- India to begin discussions with bankers and investors this week for its borrowing plan.
- Traders expect more supply of ultra-long-term debt.
- Ultra-long bonds, with maturities of 30 to 50 years, are in high demand.
India is set to initiate talks with bankers and investors this week to finalise its borrowing plan for the second half of the financial year, according to four treasury officials. The government initially aimed for a record gross borrowing of 17.20 trillion rupees but later reduced the target to 16.09 trillion rupees.
The government plans to raise 7.89 trillion rupees through bonds from October to March, accounting for about 49% of the annual target, after raising 8.20 trillion rupees in April-September.
A common demand expected is for more longer-dated bonds, given the strong investor appetite. Ultra-long bonds, with maturities of 30 to 50 years, accounted for 24.9% of April-September borrowing, down from 35% a year earlier, helping push their yields down about 20 basis points so far this financial year, compared with an 8 basis points decline in the benchmark 10-year yield.
Demand for long-term bonds from investors such as insurance companies and pension funds has increased in the last few weeks, as their investment corpus continues to grow. Srinivas Rao Ravuri, Chief Investment Officer at Bajaj Life Insurance, stated, 'From an ALM perspective, insurance companies are regular investors in longer duration bonds.'
The insurance industry is experiencing good growth, driven by regulatory support, digital innovation, and increasing customer awareness. This growth is expected to continue, bolstering the demand for longer-term bonds.
Traders noted that the strong investor appetite for ultra-long bonds is likely to persist, given the current market conditions and the government's borrowing plans. The officials requested anonymity as they are not authorised to speak to media.
From an ALM perspective, insurance companies are regular investors in longer duration bonds.
Srinivas Rao Ravuri, Chief Investment Officer at Bajaj Life Insurance
