50-Year India Bond Debuts at 7.46%

In its maiden release, India released ultra-long bonds at a cut-off yield of 7.46% on November 3, 2023. This move will lead to a reduction in government borrowing expenses, according to analysts. 

With the debut release of this Rs 10,000 crore (US$ 1.2 billion)  50-year bond, the country will make a position among one of the few nations that are actively issuing such papers.

Additionally, India plans to release two more tranches of long-term bonds by the end of March 2024.

The bonds will, in all likelihood, be offered at yields only marginally higher, by one to two basis points (bps), than the yield on the existing 40-year bond, as per the projection of fund managers and analysts. 

At the moment, the 40-year bond, maturing in 2063, is the longest-duration bond offered by the country. As of November 1, 2023, the 40-year bond had attracted bids at a yield of 7.53%; at the same time, a 30-year note was trading at 7.52%.

In the last few years, insurance companies (insurers) and pension funds have raised their purchases of government debt because of the heavy demand for their financial products.

Despite the government borrowing Rs 15.43 lakh crore of bonds in the current financial year, bonds in India have been relatively less volatile when compared to their US counterparts. This is partly due to higher demand from insurers and pension companies. 

The anticipated heavy demand for the 50-year bond may lead to a flat yield curve, elongating the maturity of the debt of government while keeping a tab on its overall interest costs.

About one-third of the government’s fiscal second-half bond supply is in papers maturing in 30-50 years. 

In September 2023, the Reserve Bank of India (RBI) stated that it looks forward to adding the 50-year bond in response to market demand for ultra-long papers, extending the country’s yield curve.