The maiden auction of the 50-year Government Security (G-Sec) on Friday saw enthusiastic bidding from investors, especially insurance companies and pension funds.

Prior to the aforementioned auction, the longest tenor paper that the Government had issued was of 40-year duration.

That the demand for the 50-year paper (maturing in 2073) was robust is underscored by the fact that investors placed 216 competitive bids aggregating Rs 40,200 crore against the notified amount of ₹10,000 crore at the auction. 

The RBI, which is the banker and debt manager to the government, accepted 54 bids worth ₹9,988 crore at the cut-off yield of 7.46 per cent (price: ₹100.09). Under the non-competitive window, the central bank accepted all four bids aggregating ₹12 crore.

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Gopal Tripathi, Head - Treasury and Capital Market, Jana Small Finance Bank, said: “India has joined the league of few sovereign countries who have issued 50-year bonds. France was first G7 country to issue it in 2005 and China issued the same in 2009.

“Robust demand from insurance companies and provident funds was reason for this issuance. This is a welcome development for the Indian bond market. The Government will issue 50-year bonds worth ₹30,000 crore between October 2023 and February 2024.”

The cut-off yield on the 50-year paper was lower at 7.46 vis-a-vis 40-year paper’s cutoff of 7.54 last week.

Referring to the price change effect of a long-duration bond, Tripathi said this can be gauged from the fact that one basis point (bp) yield change for the 50-year bond changes its price by 13.5 paisa against less than 7 paisa for the 10-year bond.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed that insurance companies and provident funds need long-term investments to fund their long-term liabilities (future payment obligations towards policyholders). So, the introduction of the 50-year G-Sec has fulfilled their investment requirements.

Besides mopping up ₹10,000 crore via the 50-year paper, the Government also raised ₹20,000 crore by auctioning two papers — 7.37 per cent GS 2028 (raised ₹7,000 crore via this paper) and 7.18 per cent GS 2033 (₹13,000 crore).

The Government raised resources at a relatively cheaper rate via auction of the 7.37 per cent GS 2028 (at a yield to maturity/YTM or redemption yield of 7.29 per cent vs 7.37 per cent at the October 20th auction) and 7.18 per cent GS 2033 (YTM of 7.31 per cent vs 7.36 per cent).

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