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Govt plans to sell 50-year bond to cater to growing demand from insurance, pension funds

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In a recent press release by the RBI about the auction of Government of India-dated securities, it introduced ultra-long maturity debt, 50-year bonds, for the first time to cater to the growing demand from insurance and pension funds.

India's central government plans to borrow Rs 6.55 trillion ($78.72 billion) via bonds from the market during the October-March period, the Reserve Bank of India said in a statement. In response to market demand for ultra-long-duration securities, the RBI has decided to introduce a new dated security with a 50-year tenor.

In 2015, the government issued a 40-year bond, and now it plans to issue a 50-year bond. These longer-dated securities mainly help the insurance and pension fund industries that seek long-term investments for their portfolios. The country'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. The sale reflects their growing heft and helps Prime Minister Narendra Modi's government reduce its reliance on purchases by banks to fund record borrowings. Insurers’ holdings of government bonds rose to 26 percent at the end of March 2022, up from over 23 percent in 2018, according to finance ministry data, reflecting their growing heft in the local debt market. The bank's ownership fell to 38 percent from 43 percent in the period.

In the latest circular, the government plans to sell Rs. 30,000 ($3.6 billion) of the different tenure bonds. The government will sell 5-year and 10-year bonds, aggregating to Rs. 20, 000 crore and Rs. 10, 000 crore ($1.2 billion), respectively. However, the government will have the option to retain additional subscriptions up to Rs. 2,000 crore against each security mentioned above. As per the circular, both competitive and non-competitive bids for the auction should be submitted in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system on November 03, 2023 (Friday). The non-competitive bids should be submitted between 10:30 a.m. and 11:00 a.m. and the competitive bids should be submitted between 10:30 a.m. and 11:30 a.m. The result will be announced on the same day and payment by successful bidders will have to be made on November 06, 2023.

Over one-third of the government’s fiscal second-half bond supply is in papers maturing in 30–50 years. The growing footprint of life insurers, which now own a quarter of government debt, has already impacted the nation's yield curve. The Reserve Bank of India said last month it plans to add the 50-year bond in response to market demand for ultra-long papers, extending the nation’s yield curve.

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