India Starts Borrowing Consultations for Second Half as Long-Term Bond Demand Rises

India is set to begin consultations with bankers and investors this week to finalize the government's borrowing schedule for the second half of the financial year, according to four treasury officials. Market participants anticipate that bond traders will press for a higher supply of ultra-long-term debt to accommodate strong institutional appetite.

In the February 1 budget, the government initially established a record gross borrowing target of ₹17.20 trillion for the financial year. This target was subsequently reduced to ₹16.09 trillion following bond switches.

For the period spanning October to March, the government plans to raise ₹7.89 trillion, equivalent to approximately $83.11 billion, through bonds. This follows the ₹8.20 trillion raised during the April-September timeframe, representing roughly 49 percent of the annual target.

A trader at a primary dealership noted that a primary market demand will likely center on longer-dated bonds, driven by robust investor appetite. All treasury officials who provided details requested anonymity as they were not authorized to speak with the media.

During the April-September borrowing period, ultra-long bonds carrying maturities of 30 to 50 years accounted for 24.9 percent of total borrowing. This is a decrease from 35 percent during the same period a year earlier. The lower supply helped push their yields down by approximately 20 basis points so far this financial year, compared to an 8 basis points decline observed in the benchmark 10-year yield.

Traders indicated that demand from long-term institutional investors, including pension funds and insurance companies, has grown over the past few weeks as their investment corpuses continue to expand.

Srinivas Rao Ravuri, Chief Investment Officer at Bajaj Life Insurance, noted that insurance companies regularly invest in longer-duration bonds from an asset-liability management (ALM) perspective. He added that the insurance sector is experiencing steady growth supported by regulatory backing, digital innovation, and rising customer awareness.

"The upcoming borrowing consultations reflect the dynamic interplay between government fiscal management and institutional demand in the debt market. As long-term investors like pension funds and insurance companies experience portfolio growth, their need for assets matching long-duration liabilities becomes critical. Monitoring how the government balances ultra-long-term debt supply with market yields will provide essential signals for the broader financial sector and institutional investment strategies in the upcoming quarters." — Dr. Shishir Gupta, Founder & CEO, StartupLanes