India to begin borrowing talks this week as traders seek more ultra-long bonds

India's government will initiate talks with banks and investors this week to finalize the borrowing plan for the second half of the fiscal year, according to four treasury officials. Traders are anticipated to request an increase in supply of ultra-long-term debt securities during these discussions, as reported on Tuesday. The government initially set a target of ₹17.20 trillion for the fiscal year in its budget announced on February 1, but subsequently revised the target downward to ₹16.09 trillion following earlier bond market adjustments.

It intends to raise approximately ₹7.89 trillion through bond issuances between October and March, constituting about 49% of the annual objective, following the issuance of ₹8.20 trillion between April and September. A prevalent expectation is that bond traders will push for more longer-dated bonds, given the robust investor interest, as per a trader at a primary dealership.

Treasury officials have indicated their unwillingness to comment to the media due to their unauthorised status. Ultra-long bonds, characterized by maturities ranging from 30 to 50 years, made up 24.9% of the borrowing during April-September, reflecting a decline from 35% the previous year. This shift in bonds' composition has contributed to a 20-basis-point reduction in their yields so far this financial year, compared to an 8-basis-point decrease in the benchmark 10-year yield.

Demand from long-term investors, including insurance companies and pension funds, has been growing in recent weeks, as their investment assets continue expanding, traders have noted. Srinivas Rao Ravuri, Chief Investment Officer at Bajaj Life Insurance, explained that the insurance sector is witnessing robust growth, fueled by regulatory backing, digital advancements, and heightened customer awareness.