For the first time, India will sell 50-year bonds, introducing ultra-long maturity debt to meet rising demand from insurance and pension funds. According to a borrowing plan released by the Reserve Bank of India on September 26, the new bond adds to the 30-year and 40-year tenor debt sold, extending the nation's yield curve.

The country's burgeoning life insurance and pension fund industries, fueled by a growing middle class, are altering the landscape for India's $1 trillion sovereign debt market. The sale reflects their growing clout and assists Prime Minister Narendra Modi's government in reducing its reliance on bank purchases to fund record borrowings.

“Investor demand has been strong, supported by the expansion of the formal sector, with households allocating a higher share of financial savings in life insurance, pensions and provident funds,” Gaura Sen Gupta, economist at IDFC FIRST Bank wrote in a note.

The government will sell 30 billion rupees ($360 million) of the 50-year bond in the October to February period, which accounts for almost 5% of its total borrowings. The growing footprint of life insurers — which now own a quarter of government debt — has already impacted the nation’s yield curve. Earlier in the year, longer-dated debt were priced at lower yields than shorter-maturity paper.

This year, the 30-year bond yield has dropped 11 basis points to 7.34%, outpacing the drop in the 5-year note, which has dropped seven basis points. The central bank announced that Modi's administration will sell 6.55 trillion rupees in bonds in the fiscal second half. This is in line with expectations and part of the full-year target of 15.43 trillion rupees, which is a record.

Traders had previously expressed concern that the government might increase its borrowing to fund additional spending ahead of next year's federal elections.

"A reduction in capex or reliance on the small savings scheme are likely to be the first ports of call," rather than additional borrowings later, according to a note issued after the announcement by Nomura Holdings Inc.