Demand for ultra-long securities from long-term investors such as pension funds and insurance companies, may have prompted the Government to include bonds of 50-year tenor in its borrowing calendar for the second half (H2) of FY24, say market experts.
The longest tenor bonds that the Government has auctioned so far were of 40-year duration.
According to the ‘Issuance Calendar for Marketable Dated Securities’ for H2, notified by the Reserve Bank of India in consultation with the Government, the Centre will mop up a total of Rs 30,000 crore through three auctions (of Rs 10,000 crore each) of 50-year Government Securities (G-Secs).
Besides selling 50-year G-Secs, the Government will also auction long-term 40-year and 30-year G-Secs to raise Rs 1.20 lakh crore and Rs 70,000 crore, respectively.
Of the total H2 borrowing programme of Rs 6.55 lakh crore, the government will raise 33.59 per cent via long-term bonds. It raised Rs 8.88 crore in H1FY24.
The Centre will also raise resources through four auctions (of Rs 5,000 crore each) of Sovereign Green Bonds (SGrBs) aggregating Rs 20,000 crore in H2FY24. Last year, it mopped up Rs 16,000 crore via these bonds.
“The issuance pattern (of bonds) is fairly distributed, reducing belly skewness at the margin, as seen in the first half. The heavy load of ultra-long duration papers and green bonds is likely to see natural buying by agents, including insurance and NPS (National Pension System),” said Madhavi Arora, Lead Economist, Emkay Global Financial Services.
Venkatakrishnan Srinivasan, Founder & Managing Partner, Rockfort Fincap LLP, observed that big insurance companies and provident funds continue to have a large appetite for long-duration bonds in spite of the huge negative liquidity in the system since September 15, 2023.
“All long-tenor instruments, including Central Government bonds, State Development Loans and long-term AAA corporate bonds, continue to be fully subscribed at current market levels.
“RBI, too, has acknowledged this fact, and in response to market demand for ultra-long duration securities, has decided to introduce a new dated security of 50-year tenor to meet the growing demand for such securities. It will also help the government postpone their repayments,” he said.
V Rama Chandra Reddy, Deputy General Manager (Treasury), Karur Vysya Bank, said based on demand from long-term investors, including pension funds and insurance companies, the government might have opted to issue a 50-year security, which would suit their investment profile.