Insurers line up for SDLs in bond forwards market

INSURANCE COMPANIES HAVE, of late, made a beeline for state development loans (SDLs) in the bond forwards market, transforming it from nil activity just three months ago to now accounting for nearly 10-15% of the overall market.

- CHRISTINA TITUS & MAHESH NAYAK

The Reserve Bank of India (RBI) launched the bond forwards market on May 1, 2025, with Kotak Life Insurance executing the first deal in government securities (G-Secs) on May 5, purchasing a 40-year, 7.34% 2064 G-Sec worth ₹20 crore from JP Morgan India. Building on that, insurers are now increasingly turning their attention to SDLs, particularly in the long-tenure bond forwards market, as spreads over G-Sec widen and opportunities for higher yields emerge.

ICICI Prudential Life Insurance has taken the lead in this space, becoming the first insurer to execute SDL bond forwards in the 20-25-year segment, say market participants. In August, ICICI Pru Life bought SDLs issued by Haryana and Bihar, locking in an IRR (internal rate of return) of close to 8%. This move is notable because SDLs, while carrying the sovereign status, typically trade at a spread of 40-50 basis points (bps) above comparable G-Secs.