“Insurance companies have been one of the key investors in long-maturity bonds,As the penetration and reach of distribution channels increase, we expect that the growth in the sales of the traditional products to continue to grow, and consequently the demand for long-maturity bonds,” said Badrish Kulhalli, head of fixed-income at HDFC Life.
The change has been incremental, with insurers owning 26% of government bonds at the end of December, up from 22% in 2010, according to finance ministry data. Their presence is likely understated thanks to the popular use of a derivative trade, worth $19 billion by some estimates, which masks purchases
Mumbai:
The growing wealth of India’s public is leading to a crucial shift in its $1 trillion sovereign bond market.
Their savings — channeled through life insurers, provident and pension funds — are increasingly getting plowed into long-term debt, leading to a structural change in the costs of borrowing for Prime Minister Narendra Modi’s government.
India’s yield curve has flattened markedly as the insurers and pension funds snapped up 10-to-40 year debt, with HDFC Life Insurance Ltd. saying that market participants are asking the central bank to sell more longer-dated bonds.
Their growing footprint mean that the state will be less reliant on banks over time, while reducing anxiety among traders over how Modi’s infrastructure-building spree will be funded.
“Insurance companies have been one of the key investors in long-maturity bonds,” said Badrish Kulhalli, head of fixed-income at HDFC Life.
“As the penetration and reach of distribution channels increase, we expect that the growth in the sales of the traditional products to continue to grow, and consequently the demand for long-maturity bonds,” he said.
The change has been incremental, with insurers owning 26% of government bonds at the end of December, up from 22% in 2010, according to finance ministry data. Their presence is likely understated thanks to the popular use of a derivative trade, worth $19 billion by some estimates, which masks purchases.
But, their rising heft was visible in recent bond auctions in the fiscal year ending March, where longer-dated debt priced at lower yields than shorter-maturity paper. The gap between the 10-year benchmark and its two-year equivalent has almost disappeared for the first time since 2017.