Long-term Indian government bonds are gaining momentum as investors seek alternatives to scarce corporate debt, with demand set to grow further supported by stable rates and market shifts.
Long-dated Indian government bonds are drawing increasing attention as investors struggle to find comparable corporate debt, with debt market participants saying demand is likely to strengthen further in the months ahead.
The shortage of long-tenor corporate paper is pushing insurers and the Employees’ Provident Fund Organisation towards longer-term government securities, according to market participants cited by the Economic Times’ BFSI arm. Expectations that the Reserve Bank of India could keep rates unchanged for longer are also underpinning interest in the far end of the curve. The 15-year bond, which traded at 7.20% in February on expectations of higher rates, is now around 6.98%.
The shift comes against a broader backdrop of uneven activity in India’s bond market. Business Standard reported in July that investors had been moving into shorter-duration corporate bonds because yields looked attractive, even as government security yields remained broadly steady after the Reserve Bank’s 50 basis point policy cut on June 6. Separately, another Business Standard report said Indian companies were not rushing back to bank borrowing despite firmer corporate bond yields, because lending rates remain elevated and many firms still have ample cash.
Fund managers are also adjusting to the new rate environment. Invesco Mutual Fund’s Vikas Garg told Mint that longer-duration debt can still offer tactical value if geopolitical tensions ease and the long end of the yield curve rallies, although he warned that crude oil prices and possible US rate moves could still unsettle sentiment. DSP Mutual Fund has taken a similar view, saying it favours five-year and longer government securities while remaining wary of the 10-year benchmark bond because demand there has been weak.
The wider structural problem is the scarcity of long-term corporate funding in India. Moneycontrol reported that the corporate bond market remains relatively small at about 16% to 17% of GDP, and the Economic Survey 2025-26 called for broader reforms, including tax simplification and incentives to widen the investor base. Banks have also urged the Reserve Bank to limit issuance of very long-dated bonds, reflecting weak demand from insurers and pension funds and the pressure that places on borrowing costs.
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