Investors Urge Government to Issue More Short-Term and Green Bonds, Say Bankers
Investors are pushing the Indian government to increase the issuance of short-term and green bonds, while also considering the resumption of floating rate bond auctions, according to six bankers familiar with the discussions. These recommendations were made during meetings about the government's borrowing plan for the second half of the current fiscal year.
The bankers, who requested anonymity due to the sensitive nature of the talks, stated that market participants have called for a higher volume of short-term bonds to help banks manage their liquidity needs. Short-term bonds are considered less risky, making them an attractive option in the current economic climate.
Additionally, the bankers noted that investors are interested in the return of floating rate bonds, which have not been issued since July 2022. These bonds, whose yields are tied to the 182-day treasury bill rate, were discontinued due to weak demand amid rising interest rates. However, with expectations of a potential rate cut in the second half of the fiscal year, investors believe that floating rate bonds could again offer attractive returns. "By the time the second-half supply begins, we could be on the verge of a rate cut, so banks have suggested that the government should revert to issuing high-yielding floating rate bonds," said one banker involved in the discussions.
Long-term investors, such as insurance companies and pension funds, have also requested an increased supply of long-duration bonds to better align with their investment strategies, the bankers added. These institutional investors typically prefer longer-term securities for stable, predictable returns.
India’s borrowing target for the fiscal year is set at ₹14.01 trillion ($166.9 billion), with ₹7.4 trillion expected to be borrowed by the end of September. The Reserve Bank of India, which manages the government’s debt, has not commented on these suggestions.
The market’s focus on short-term bonds, green bonds, and floating rate securities reflects investor sentiment as they prepare for potential shifts in interest rates and liquidity needs in the coming months.
