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India’s first-ever issuance of 50-year government bonds and 30-year green bonds can be easily absorbed by insurance companies and provident funds, which are keen and have been looking for avenues to park long-term funds, officials said.
India aims to raise ₹6.55 trillion ($78.73 billion) through the sale of bonds in October-March. This would include ₹300 billion of the 50-year security, the first such auction by the central government.
“Long-term investors like insurers will have a natural demand for the 50-year paper. Most insurance companies require longer-duration bonds for their asset-liability management,” said Churchil Bhatt, executive vice president at Kotak Mahindra Life Insurance Co.
“The insurance sector requested the 50-year paper’s issuance,” he said, adding that the anchor for its pricing would “naturally be the current 40-year bond”.
Other market participants like provident funds and pension funds are also likely to actively participate in the bond auction, traders said.
The government also reintroduced green bonds for the second half after pausing it in April-September. It aims to raise ₹200 billion through such notes, half of which would be through the new 30-year papers.
“There are few public sector (companies) issuing longer-term bonds,” said Rahul Bhuskute, chief investment officer at Bharti AXA Life Insurance.
“New avenues like longer-term green bonds would be of some comfort to insurance companies in terms of regulatory compliance with investments in their desired duration.”
Sampath Reddy, chief investment officer from Bajaj Allianz Life Insurance, said they invested in green bonds earlier and may choose to invest more in the second half as supply comes up.
The government sold its first-ever green bonds with five-year and 10-year maturities in January, at yields that were just around five basis points lower than other securities. Banks are not comfortable absorbing green bonds at a major premium.
However, insurance companies would be comfortable investing in green bonds of longer maturities, said Mr. Bhuskute, as the current investment limit in the infrastructure segment is filled with shorter-duration corporate bonds.
Kotak Mahindra Life’s Mr. Bhatt sees limited scope for premium, even in 30-year green bonds, as the current yield curve “is very flat, leaving limited room for greenium.”
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