The Reserve Bank of India will start selling the longest ever government bonds with 40-year maturity, a move that will not only defer sovereign repayments but also, attract yield-hungry overseas investors to domestic debt market.
The idea of floating long term bonds was actually mooted six months earlier when the finance secretary Rajiv Mehrishi hinted at issuing 40-year bonds to borrow up to Rs 10,000 crore.
“The Government Stock will be of ’40 year’ tenure commencing from October 26, 2015. The Stock will be repaid at par on 26 October, 2055,” RBI said in a release.
While long term investors like insurers, pension and provident funds are likely to grab these bonds, overseas investors too would be interested.
The yield spread or gap between such long term paper and US benchmark Treasury would be more than 500 basis points, attractive enough for foreign portfolio investors, dealers said.
“With a relatively stable currency, this paper will evince fresh interest among global long term investors,” said an investment banker. There is also an opportunity for capital appreciation as and when RBI cuts rates, and the benchmark yield dips pushing prices up.
So far, the longest security is of 30-year maturity, which is now yielding about 7.82% in the secondary market. The new paper is likely to be priced three-five basis points higher than this, dealers said.