The absence of long-tenor corporate debt is prompting insurance companies and the Employees’ Provident Fund Organisation (EPFO) to gradually move allocations toward long-term government bonds. Additionally, expectations that the Reserve Bank of India may hold rates for longer are likely to further support demand for long-tenured government bonds in the near term, debt market participants said.
The 15-year paper, which was trading at 7.20% in February this year due to expectations of a hike, is now trading at 6.98%.
As corporate debt becomes increasingly limited, long-tenured government bonds are witnessing a surge in demand. Institutions like insurance companies and the EPFO are pivoting their investments to these government securities. Anticipation that the Reserve Bank of India will maintain its current rate stance bolsters this trend, with upcoming issuances of new long-term bonds from NABFID and the RBI.
A similar trend is seen in 30- and 40-year G-secs. A falling yield reflects demand, as prices and yield have an inverse relationship. The 15, 30 and 40 year G-secs – the most liquid long tenured bonds – account for about 6.3% of the total outstanding bonds, RBI data showed.
“General insurance companies have to maintain a minimum 65% of investment assets in the G-secs, state government bonds and AAA rated bonds. When the spreads of corporate bonds are not attractive or when long dated corporate bonds are not available, we prefer buying g-secs” said Aneesh Srivastava, chief investment officer, Star Health Insurance.
The EPFO has a regulatory mandate to invest at least 20% incremental investible funds per year in corporate bonds.
Regulatory Fiat“Long-tenure bonds, both corporate and G-secs, are likely to see stronger demand as large insurance companies, provident and pension funds, will look to meet their regulatory requirements. We could also see these large institutional investors working closely with issuers to structure or participate in long-tenure bonds that better match their long-term liabilities,” said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, a debt advisory firm.
State owned NABFID is set to raise ₹3,000 crore on Friday for a tenure of 15-years. On the same day, the RBI on behalf of the government, will raise a green bond and a g-sec of ₹5,000 crores each, both having a tenure of 30 years.
ET BureauYield Decline: The 15-year G-sec yield has fallen to 6.98% from 7.20% in Feb this year, with 30- and 40-year papers showing a similar trend as insurers and EPFO turn to longer bonds
Read Also: Sebi seeks public comments on review of Accredited Investor framework
Naturally, the absence of long corporate bonds will increase demand, but there is another factor that could give this long-tenured demand further momentum. Lower than expected inflation in July, along with expectations of stronger growth in Q1FY27, is strengthening bets that the RBI will keep rates unchanged for an extended period.
“When the stance was changed to neutral in June 2025, markets reduced their exposure to long-term bonds. Now, with expectations building that there could be a long pause in rates and maybe also a cut later, investors are likely to start buying long-term bonds again and rebuild the duration they had cut last year,” said Alok Singh, head of treasury, CSB Bank.