Cash-rich insurers buy medium-term bonds from lenders

Mumbai: India’s major lenders including HDFC Bank and Axis Bank are reportedly selling relatively shorter duration bonds ahead of the monetary policy review next month. Insurers and large companies, including Reliance Industries, ITC, Infosys and Wipro, would buy the papers, the dealers said.


showed that daily secondary market volumes nearly quadrupled last week to 8,979 crore on November 25, down from 2,310 crore percent – a short-term low recorded two weeks ago on November 11.

“Cash-rich companies and insurance companies invest in medium-term assets because the long-term view of interest rates is not very favorable,” said Piyush Wadhwa, director of treasury at IDFC. Bank. “Deposit rates are always low, which makes these investments attractive. In the short term, these instruments anticipate a rise in rates. Banks reduce some positions before politics or buy longer-dated securities.

The maturities of these papers are in the range of three to seven years, with the five-year segment being the most popular.

Reliance Industries bought some of ICICI Bank’s infrastructure bonds while ITC bought perpetual securities from the State Bank of India (SBI), market sources told ET.

“In a volatile market, the longer end of the curve is seen as riskier,” said Mihir Vora, CIO at Max Life Insurance. “In the short term, there is a risk of the RBI’s liquidity normalizing. This makes the middle segment relatively stable, prompting some investors to buy.

Individual banks and corporations, with the exception of ITC, did not comment.

Corporate bonds changing hands include Rural Electrification Corporation, Power Finance Corporation, National Bank for Agricultural and Rural Development (NABARD), Kotak Prime, LIC Housing Finance and HDFC Ltd.

The spread or spread between AAA-rated corporate bonds and five-year government securities is now in a range of 20 to 30 basis points, down from 40 to 50 basis points three months ago.

ITC declined to comment on specific treasury transactions. “All investment decisions relating to the deployment of excess liquidity continue to be guided by the principles of safety, liquidity and yield,” said a spokesperson.

Credit policy due next month could provide some indication of the path of rates.

“In the next credit policy in December, we may be able to get a clearer picture of the path of interest rates, but long-term rates will rise much more slowly than short-term rates,” Ajay said. Manglunia, Managing Director of Institutional Fixed Income Division at JM Financial. . “This divided investors into two groups taking two different bets to meet their immediate cash flow goals.”

Due to the central bank’s stated policy of liquidity normalization, shorter duration rates up to one year have risen sharply. The benchmark yield has not evolved in tandem.

The 364-day Treasury bill last week returned 4.13%, 32 basis points more than two months ago, just ahead of RBI’s latest bi-monthly policy. Over the same period, the benchmark bond yield increased 12 basis points to 6.33%.

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