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

Business Recorder reported that Indian companies are shifting toward longer-dated borrowing, drawn by firm appetite from insurers and pension funds as yield differences between maturities shrink. Four state-run firms have collectively borrowed 120 billion rupees ($1.26 billion) via bonds with tenors of a decade or longer in the past four days, bankers said. Four or five similar deals are expected in September.

Vinay Pai, head of fixed income at Equirus Capital, said insurers and pension funds are growing their investable pools and must match them with long-dated liabilities. After the central bank struck a more hawkish tone, shorter-dated corporate bond yields climbed, reviving the prospect of rate increases in 2026. Limited issuance by top-rated companies, state governments and the federal government has also supported demand, while New Delhi trimmed its share of 30 to 50-year bonds to 25% from 35% a year earlier.

Some investors, however, view the shift as temporary, and Vidya Iyer of ICICI Prudential Life Insurance said recent issues do not point to a structural change. Bajaj Finance's notes found a single buyer in Life Insurance Corp of India, and the spread on PFC and REC bonds over government paper dropped to its lowest in 18 months.