Retirement Funds Deepen Roots in India’s Booming Bond Market

"(Bloomberg) -- .India’s pension funds are wielding growing influence in the country’s financial markets, competing directly with major bond investors to secure debt sales..The National Pension Scheme, a voluntary retirement savings program, has seen its assets surge by more than 23 times to 11.7 trillion rupees ($140 billion) over the past decade, driven by an increasing number of savers using this low-cost avenue to provide for their later years. .The increased firepower has fueled a surge in the issuance of longer-dated paper, with pension funds holding 4.4% of the total bonds outstanding as of December, up from 3.6% in June 2022, according to official data. Their heft is set to expand as India’s rapid economic growth brings a larger workforce under the pension fold, according to DSP Pension Fund Managers..Their influence became evident when the government in March introduced a new 15-year paper based on market feedback. In fact, bonds with a tenor of 15 years and above now make up more than half of the federal borrowing plan for the first half of the current fiscal year. .The successful debut of the 50-year bond last year also underscores demand from insurance and pension funds for ultra-long papers. Pension funds tend to follow a strategy of matching liabilities — which are usually long-term — with similar-maturity debt. .“This increased participation by pension funds brings liquidity and stability in the market,” said Rahul Bhagat, chief executive officer at Mumbai-based DSP Pension Fund. “Pension funds will overtake all other asset classes as contribution grows and more subscribers get on-boarded.”.India’s burgeoning life insurance and pension fund industries, driven by a structural shift in household savings toward financial assets, are changing the landscape for the nation’s $1 trillion sovereign debt market that’s set to be added to global bond indexes in June. .The country’s yield curve has been nearly flat even amid record borrowing by the government in recent years, with the gap between the five-year and 30s-year bonds shrinking to ten basis points from over 150 basis points in 2020. .The yield on the benchmark 10-year bond was steady at 7.16% on Friday, after surging by thirteen basis points in April, the biggest jump in six months. .That should help lower the funding costs for the infrastructure-building plan, a cornerstone of Prime Minister Narendra Modi’s campaign for a third term. .Pension funds still have room to grow. Lenders held 38% of government debt as of the end of December, followed by insurers at 26%. In contrast, Australia’s pension funds own 12% of their nation’s fixed-income assets..India began the NPS about two decades ago to provide a low-cost and tax-efficient savings account for retirement. As of March 31, the fund had more than 73 million subscribers, which is a fraction of India’s population and less than half the number of stock-trading accounts in the country..Even so, pension funds compliment the newer crop of investors in India’s debt market. Global investors are also steadily increasing their investments in local sovereign bonds ahead of their inclusion in JPMorgan Chase & Co.’s global indexes..“As NPS demand is usually at the long end of the curve, the market in that segment will develop. The issuance of a 50-year government bond illustrates this point,” said Nagaraj Kulkarni, co-head of Asia rates ex-China at Standard Chartered Plc in Singapore. .--With assistance from Matthew Burgess and Subhadip Sircar..(Adds 10-year yields in the ninth paragraph).More stories like this are available on bloomberg.com.©2024 Bloomberg L.P."

Retirement Funds Deepen Roots in India’s Booming Bond Market

The National Pension Scheme has seen its assets surge by more than 23 times to Rs 11.7 lakh crore over the past decade.

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Retirement Funds Deepen Roots in India’s Booming Bond Market

The National Pension Scheme has seen its assets surge by more than 23 times to Rs 11.7 lakh crore over the past decade.

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