Debut of 50-year India bond lures insurers hungry for yields

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debt market. The government plans to sell ₹10,000 crore of a 2073 bond on Friday, according to the Reserve Bank of India. Bajaj Allianz Life Insurance Co.

Ltd. and HDFC Life Insurance Co. Ltd.

anticipate demand for the paper will be strong as insurers try to lock in higher yields to take care of long-term commitments. “All of us would want to buy some of those 50-year bonds to cover the asset-liability mismatch," said Sampath Reddy, chief investment officer at Bajaj Allianz. The long bond “will help us manage interest rate risks better for our portfolios." The nation’s thriving life insurance and pension fund industries, driven by an expanding middle class, are changing the landscape for India’s sovereign debt market.

India’s yield curve has been nearly flat even amid record borrowing by the government as insurers stepped up purchases of long-term bonds. The yield on the 50-year note is likely to be close to its 40-year counterpart, which was sold at about 7.54% last week, according to HDFC Life and and Kotak Mahindra Life Insurance Ltd. Indian authorities may be trying to increase the tenure of debt sold and expect yields to decline once India’s sovereign bonds get included to JPMorgan Chase & Co.’s emerging market index next year.

Over one-third of the government’s fiscal second-half bond supply is in papers maturing in 30-50 years. 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. Insurers’ holdings of government bonds rose to 26% at the end of March 2022, up from over 23% in 2018, according to the latest finance ministry data, reflecting their growing heft in the local debt market.