Bond market gets a boost as first forwards deal takes off

Kotak Life and JP Morgan execute the deal valued at ₹20 cr

- MAHESH NAYAK

AFTER PERSISTENT EFFORTS and dialogues with the regulator to introduce bond forwards, Kotak Life Insurance and JP Morgan India successfully executed India's first bond forwards on May 5, marking a significant step forward in enhancing the country's bond market infrastructure.

The Reserve Bank of India (RBI) permitted bond forwards in government securities from May this year, allowing insurance companies, mutual funds, and other institutional players to help hedge their positions by buying bonds from banks and institutions.

The first bond forwards deal reported on CCIL involved Kotak Life Insurance purchasing 40-year, 7.34% 2064 government securities (G-Sec) bond forwards worth ₹20 crore from JP Morgan for a tenure of more than 5 years and less than 7 years.

Confirming the deal, Mahesh Balasubramanian, managing director at Kotak Life Insurance, said, "Bond forwards are a step in the right direction for hedging future risk. Earlier, under forward rate agreements (FRAs), the seller didn't have a contractual obligation to sell the bond, but with bond forwards, the seller must deliver the bonds at a future date."