Indian firms turn to longer-term debt amid strong demand as yield gap narrows

MUMBAI: Indian companies are turning to longer-term debt to tap strong demand from insurers and pension funds as the yield gap across maturities narrows, reducing the appeal of near-term borrowing, five investors and bankers said.

Four state-run companies have raised 120 billion rupees ($1.26 billion) through bonds maturing in 10 years or more over the past four days, the bankers said.

Four or five more plan similar issues in September, three of the bankers said.

The yield gap has narrowed, with shorter-duration corporate bond yields seeing a spike after hawkish commentary from the central bank, which brought rate hikes back on the table for 2026.

“The underlying demand for long-duration assets from insurers and pension funds remains primarily driven by their growing corpus, liability matching requirements and the relative attractiveness of yields,” said Vinay Pai, MD & Head of Fixed Income at Equirus Capital.

“Insurance companies and pension funds are seeing growing investible corpuses and need to match these with long-duration liabilities,” he said.

State-run Power Finance Corp and REC raised 25 billion rupees each through 15-year and 10-year bonds last week.

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Bajaj Finance raised 50 billion rupees through 10-year notes, while Cholamandalam Investment raised 20 billion rupees via perpetual bonds with a 10-year call option.

PFC and REC could return to the market, while the National Bank for Financing Infrastructure and Development (NaBFID) and National Bank for Agriculture and Rural Development (NABARD) may also sell longer-dated debt in September, bankers said.

Life Insurance Corp, India’s largest insurer, was the sole buyer of Bajaj Finance’s notes, while the premiums on PFC and REC bonds over comparable government debt fell to 18-month lows.

Bankers said limited issuance of long-dated debt by highly rated companies, state governments and New Delhi was also driving demand.

New Delhi cut the share of ultra-long, 30-year to 50-year bonds in its April–September borrowing programme to 25%, from 35% a year earlier.

In addition, moderation in state debt issuance following the heavy supply seen in January–March has supported demand for long-dated paper, Sachin Bajaj, Executive Vice President and Chief Investment Officer at Axis Max Life Insurance, said.

Still, some investors said the trend may be short-term.

“The recent issuances do not signal a structural shift” and were instead absorbed by investors with specific requirements, said Vidya Iyer, head of fixed income at ICICI Prudential Life Insurance.