India’s yield curve stretches further.. GoI to issue 40 year bonds

This is an interesting development. Many don’t know how active and vibrant Indian government bond markets have become over the years. A process which started nearly 25 years ago following the 1991 reforms has moved from one strength to the other.

We have an automated anonymous market just like in equities, a high quality settlement system, vibrant money markets, a nuvation based repo lending in form of CBLO (which Western world is still discussing and struggling), a yield curve from 1 year to 30 year (yes there is illiquidity in many buckets which will even out in due time) etc etc.

The latest is a 40 year bond:

The long-term bonds of 40-year maturity to be auctioned by the central government for the first time in the next financial year are set to grab the attention of insurance companies, pension funds and provident fund players. The current highest maturity is 30 years. These longer tenure bonds will help to develop the yield curve beyond 30 years.

Finance Secretary Rajiv Mehrishi had on Monday said the government would use these 40-year bonds to borrow up to Rs 10,000 crore and the dates were yet to be finalised for the launch. According to the issuance calendar of marketable dated securities for the first half of the financial year (April-September), issued on Monday, for every week beginning April, the Reserve Bank of India (RBI) will auction a 20-year and above security for an amount in the range of Rs 3,000-4,000 crore. The government will borrow Rs 3.6 lakh crore in the first half.

“All insurance companies will be interested in these bonds because almost all of them offer annuity products. In these products, long-dated bonds are required,” said Badrish Kulhalli, head of fixed income at HDFC Life.

There are some concerns over whether there will be any demand for this which os overblown. It is just slated to be around Rs 10,000 cr which is not even a drop in the borrowing ocean. The limit will be increased only gradually.

Should help somewhat in the ever struggling corporate debt market..

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