The central government has introduced a new dated security of 50-year tenor in its borrowing calendar for the second half of the current financial year—a long-standing demand by life insurance companies, particularly Life Insurance Corporation of India.
"In response to market demand for ultra-long duration securities, it has been decided to introduce a new dated security of 50-year tenor," the Reserve Bank of India (RBI) said while issuing the borrowing calendar for the second half of the financial year.
Market participants said that the Rs 30,000 crore supply in the 50-year bond will be absorbed by the insurance companies.
"The 50-year bond was introduced because there was a kind of demand from the insurance companies," Churchil Bhatt, executive vice president at Kotak Life Insurance said. "The demand will be largely from the insurance sector," Bhatt added.
The central government's borrowing amount of Rs 6.6 trillion for the second half of the current financial year was along the expectations of the market, dealers said.
"Borrowings are as per budgeted numbers, good to declare in advance so that quarter-end positions can be adjusted accordingly. Auction to be over in mid-February 2024, so easing pressure on yield in the last quarter as by that time repo rate decisions will be more predictable. Green bonds in 5, 10, and 30 years to be issued for Rs 20,000 crore. Huge redemption in H2 will be better for yields," Arun Bansal, executive director head of treasury at IDBI Bank, said.
Market participants observed that borrowing in the shorter end of the curve has been reduced, whereas issuance in the longer end has been increased. "Borrowing in line with expectations; October and November borrowing is slightly lower than expected but it picks up from December," the treasury head at a private bank said. "The borrowing in the shorter end has been reduced, whereas that in the longer end has been increased, probably because of a flat yield curve," he added.
The planned borrowing in H2 constitutes 42 per cent of the total Rs 15.43 trillion planned for the current financial year.
Meanwhile, government bond yields reversed all losses by the end of the trade and settled lower on Tuesday after a fall in US Treasury yields following a sharp rise earlier. The yields rose in early trade tracking a rise in US Treasury yields. The benchmark yield touched the day's high of 7.18 per cent.
The yield on the benchmark 10-year bond settled at 7.14 per cent on Tuesday, against 7.15 per cent on Monday.
On the other hand, the Indian rupee depreciated on Tuesday due to the rise in US Treasury yields. It settled at Rs 83.23 a dollar, against Rs 83.15 per US dollar on Monday.
"USDINR spot closed 8 paise higher at 83.23. Since mid-August, volatility has come down dramatically in USDINR, and the pair has been largely oscillating within a narrow range of 82.70 and 83.30 on spot. We expect the range to break soon and volatility to increase. If the global cues of rising US interest rates and a strong US dollar remain, then the risk of an upside breakout will be higher than a downside breakdown. We expect an overall range of 82.80 and 83.30," Anindya Banerjee, vice president - currency derivatives & interest rate derivatives at Kotak Securities Ltd, said.
The unit hit an all-time closing low on 18 September when it ended the day at 83.27 per dollar. The rupee has depreciated 1.27 per cent against the dollar in the financial year so far and 0.54 per cent this month.