MUMBAI: The government’s auction of the first 50-year bond evoked a strong demand from investors on Friday as the Reserve Bank of India (RBI) received bids worth Rs 40,200 crore (4x) for these ultra-long bonds, against the notified amount of Rs 10,000 crore.
The RBI set a coupon rate of 7.46% on the new government security maturing in 2073 during the weekly bond auction.
The central bank received a total of 216 bids, majority of which were from insurance companies and pension funds. “It was very well received by the market because the cut-off yield was better than expectations. The market was expecting the cut off at 7.47-7.49%,” Ajay Manglunia, managing director and head of Investment-Grade Group at JM Financial, told FE. “Everyone wanted a pie of this paper because there is not much supply of sovereign at this tenure,” he added.
At 7.46%, these papers offer good opportunity to lock in at these yields for longer duration, Manglunia added.
Before debut of this paper, India’s longest tenor government bond was the 40-year paper for which the cut-off yield is at 7.47%. The yield on 30-year paper is at 7.46%.
Experts expect these ultra-long-term bonds to become a regular feature in the government’s borrowing programme.
“Most bids were were from insurers. We also bid for this paper but could not get it,” Arun Bansal, head of Treasury, IDBI Bank, told FE. “With such a good response, we expect the government to issue more such bonds going forward,” he added.
The government had earlier announced plans to sell Rs 30,000 crore of the 50-year bond in the October-February period.
The sale of long-term bonds may help the government elongate the tenure of debt sold and keep its interest costs under control. Over one-third of the government’s fiscal second-half bond supply is in papers maturing in 30-50 years. The RBI had in September said it planned to add the 50-year bond in response to market demand for ultra-long papers, extending the nation’s yield curve.
The government plans to raise Rs 6.55 trillion in the second half of the current financial year as part of its stated borrowing plan. The 50-year bond will be used to raise 4.58% of this target, the government had disclosed in September.
Source: The Financial Express