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Business Standard
23-06-2025
- Business
- Business Standard
Limit on duration for state debt STRIPS may dent demand, say insurers
The Indian central bank's attempt to create a market for separate trading of principal and interest for state government debt may be dampened by rules on the duration of bonds eligible for such securities, top insurers said. Earlier this month, the Reserve Bank of India enabled Separate Trading of Registered Interest and Principal of Securities (STRIPS) for state debt but said these securities can only be issued for bonds with a residual maturity of up to 14 years. With about half of state debt supply in longer-duration papers, the regulation could curb demand, mainly from insurance companies which are the biggest investors in STRIPS. "As far as life insurance companies are concerned, the demand is more for above 20-year papers. I expect the RBI to eventually remove the duration cap in state debt STRIPS and allow STRIPS even for 30-year papers," said Rahul Bhuskute, CIO at Bharti AXA Life Insurance. STRIPS allow dealers to sell principal and interest payments independently, enhancing liquidity in the state government securities by enabling distinct trading of these components. Until now, STRIPS were allowed only for central government securities, with no limit on duration. "Insurance companies have liabilities up to 40-plus years and hence preference is always towards STRIPS with longer maturities," said Sachin Bajaj, executive vice president and chief investment officer at Axis Max Life Insurance. Bajaj added that insurance companies primarily fulfill their 10-15-year demand through corporate bonds. Indian states raised ₹1.74 trillion ($20.06 billion) through the sale of bonds in April-June, of which over 50 per cent was borrowed through bonds with more than 14 years duration. Traders estimate another ₹8 trillion of state bonds will be issued over the next three quarters with a similar maturity pattern. STRIPS help insurers increase the duration of their asset portfolio as well as improve cash flow matching against certain liabilities, said Ketan Parikh, head of fixed income at ICICI Prudential Life Insurance. "Typically, insurance companies have a larger appetite for STRIPS beyond 15 years, while pension funds are more active in the 8-15 year STRIP segment," Parikh added.
Reuters
23-06-2025
- Business
- Reuters
Indian insurers say limit on duration for state debt STRIPS may dent demand
MUMBAI, June 23 (Reuters) - The Indian central bank's attempt to create a market for separate trading of principal and interest for state government debt may be dampened by rules on the duration of bonds eligible for such securities, top insurers said. Earlier this month, the Reserve Bank of India enabled Separate Trading of Registered Interest and Principal of Securities (STRIPS) for state debt but said these securities can only be issued for bonds with a residual maturity of up to 14 years. With about half of state debt supply in longer-duration papers, the regulation could curb demand, mainly from insurance companies which are the biggest investors in STRIPS. "As far as life insurance companies are concerned, the demand is more for above 20-year papers. I expect the RBI to eventually remove the duration cap in state debt STRIPS and allow STRIPS even for 30-year papers," said Rahul Bhuskute, CIO at Bharti AXA Life Insurance. STRIPS allow dealers to sell principal and interest payments independently, enhancing liquidity in the state government securities by enabling distinct trading of these components. Until now, STRIPS were allowed only for central government securities, with no limit on duration. "Insurance companies have liabilities up to 40-plus years and hence preference is always towards STRIPS with longer maturities," said Sachin Bajaj, executive vice president and chief investment officer at Axis Max Life Insurance. Bajaj added that insurance companies primarily fulfill their 10-15-year demand through corporate bonds. Indian states raised 1.74 trillion rupees ($20.06 billion) through the sale of bonds in April-June, of which over 50% was borrowed through bonds with more than 14 years duration. Traders estimate another 8 trillion rupees of state bonds will be issued over the next three quarters with a similar maturity pattern. STRIPS help insurers increase the duration of their asset portfolio as well as improve cash flow matching against certain liabilities, said Ketan Parikh, head of fixed income at ICICI Prudential Life Insurance. "Typically, insurance companies have a larger appetite for STRIPS beyond 15 years, while pension funds are more active in the 8-15 year STRIP segment," Parikh added. ($1 = 86.7300 Indian rupees)
Business Recorder
20-06-2025
- Business
- Business Recorder
Indian bond yields end a tad higher on week amid worries over oil surge
MUMBAI: Indian government bond yields ended marginally higher for the week on Friday, as elevated oil prices dampened sentiment, overshadowing dovish commentary from the central bank chief. The yield on the benchmark 10-year bond ended at 6.3087%, compared with the previous close of 6.3095%. The five-year 6.75% 2029 bond ended at xx% after ending at 6.0176% on Thursday. The yields rose 1 and 2 basis points this week. 'The immediate lookout in the market is the ongoing Iran- Israel conflict and its impact on oil prices and the currency,' said Rahul Bhuskute, CIO at Bharti AXA Life Insurance. 'If the conflict escalates further and the oil price shoots up sharply, the central bank may find itself in a spot to protect the rupee and may have limited room to ease more.' The benchmark Brent crude contract has risen 4.2% so far this week, after jumping 11.7% last week amid ongoing conflict between Iran and Israel. The contract was around $77 per barrel, with uncertainty about potential U.S. involvement stoking caution. Indian bond yields marginally higher; focus on oil, debt supply India imports a bulk of its crude oil needs, and higher prices could impact its inflation outlook. Earlier this month, the Reserve Bank of India reduced its inflation forecast for the current fiscal year to 3.7%, while cutting its key lending rate by a steeper-than-expected 50 basis points. It, however, reverted to a 'neutral' stance from 'accommodative', prompting analysts to forecast the end of the monetary easing cycle. However, RBI Governor Sanjay Malhotra said earlier in the week that inflation below the central bank's current projections could open up policy space. Rates Indian overnight index swap (OIS) rates eased slightly this week, after witnessing paying in the previous week. The one-year OIS rate was at 5.52%, while the two-year OIS rate ended at 5.52%. The liquid five-year ended at 5.75%.
