 "Green bonds")
The central government has announced plans to borrow 53.07 per cent of its full-year target in the first half (April-September) of the upcoming financial year (FY25).
In a departure from the usual pattern of issuing green bonds in the latter half of the year, the Union government plans to issue green bonds worth Rs 12,000 crore in the first half of 2024-25. These shall be issued in two tranches of Rs 6,000 crore each, with a maturity period of 10 years.
The gross borrowing for the first six months of the upcoming financial year stands at Rs 7.50 trillion, out of the total borrowing target of Rs 14.13 trillion. In addition, a new 15-year tenor dated security has been introduced, replacing the existing 14-year tenor paper.
ALSO READ: Growth of 7% perfectly good unless external enviorment improves: Sanyal
ALSO READ: Growth of 7% perfectly good unless external enviorment improves: Sanyal
“In order to enable institutional and retail investors to plan their investments efficiently and provide transparency and stability to the government securities market, the Government of India (GoI), in consultation with the Reserve Bank of India, hereby notifies the indicative calendar for issuance of government dated securities, including sovereign green bonds (SGrB) for the first half of 2024-25 (April 01, 2024 to September 30, 2024),” the Ministry of Finance said in a statement. “Based on market feedback and in line with global market practices, it has been decided to introduce a new dated security of 15-year tenor.”
The H1FY25 borrowing proportion is less than that in the first six months of FY24, which saw borrowing at 58 per cent of the full-year target.
More From This Section
Gaura Sen Gupta, economist at IDFC First Bank, said: “The calendar is very positive from a supply perspective. Last time we had a similar distribution was in FY19, when we had 50 per cent of the full year supply in H1. The calendar is good for ultra-long securities, where the supply is less than H1FY24.”
The government borrowing programme is scheduled to be completed in 26 weekly tranches of Rs 20,000-38,000 crore each. The borrowing will be spread over three-, five-, seven-, 10-, 15-, 30-, 40- and 50-year securities.
As part of its borrowing calendar for the April-September period, the government plans to sell Rs 67,000 crore of the 50-year bonds, against Rs 30,000 crore in H2FY24. The central government had introduced the 50-year tenor security in its borrowing calendar for the second half of the FY24, which was a long-standing demand by life insurance companies, particularly Life Insurance Corporation of India. Before the introduction of the 50-year bond, the longest tenor government bond available was the 40-year bond.
The share of borrowing under different maturities will be 4.8 per cent for 3-year bonds, 9.6 per cent for 5-year bonds, 8.8 per cent for 7-year securities, 25.6 per cent for 10-year paper, 13.86 per cent for 15-year bonds, 8.93 per cent for 30-year securities, and 19.46 per cent and 8.93 per cent for 40-year and 50-year bonds, respectively.
“The sharp 15.5 per cent Y-o-Y fall in the GoI’s gross supply in the first half of the financial year, along with the bond index inclusion starting end-June 2024, is expected to augur well for G-sec yields,” said Aditi Nayar, chief economist, ICRA.
ICRA expects the 10-year yield to trade between 6.8 per cent and 7 per cent during H1FY25.
Nayar added: “The GoI’s borrowings are relatively more back-ended in FY25, with over 46.9 per cent of the gross issuances scheduled for H2FY25 as against 42.4 per cent in H2FY24, in line with the expected ramping up of capital expenditure after the final Budget and the monsoon.”
Bond market participants said that the yield on the benchmark 10-year government might fall by around 4-5 basis points on Thursday following the lower-than-expected supply. The market was expecting around 58 per cent of the total borrowing in the first half, they said.
“It’s positive, given it is lower than expected. It’s a good day for the market,” said Naveen Singh, vice-president of ICICI Securities primary dealership. “We might see some prices go up tomorrow (Thursday).”
