Indian insurers pivot to long-term sovereign bonds as corporate debt dries up
A scarcity of long-dated corporate debt and expectations of a prolonged pause in interest rates are driving Indian insurers and state funds into long-term government securities.
Indian institutional investors are increasingly shifting their allocations into long-term government bonds as the supply of long-dated corporate debt dries up. Insurance companies and the Employees' Provident Fund Organisation are leading this pivot into sovereign paper to meet their duration requirements.
This flight to duration has driven down yields on long-tenor securities. The benchmark 15-year government bond, which traded at 7.20 per cent in February amid expectations of a rate hike, has seen its yield fall to 6.98 per cent.
The trend extends across the long end of the curve, with similar price gains seen in 30-year and 40-year government securities. According to central bank data, these highly liquid 15, 30, and 40-year bonds currently account for roughly 6.3 per cent of India's total outstanding bond market.
Regulatory requirements are a primary driver of this allocation shift. General insurers are mandated to keep at least 65 per cent of their investment assets in government securities, state development loans, and triple-A rated corporate bonds.
"General insurance companies have to maintain a minimum 65% of investment assets in the G-secs, state government bonds and AAA rated bonds," said Aneesh Srivastava, chief investment officer at Star Health Insurance. "When the spreads of corporate bonds are not attractive or when long dated corporate bonds are not available, we prefer buying g-secs."
Supply dynamics will further test this demand in the coming days. State-owned NABFID is scheduled to raise 30bn rupees through a 15-year bond sale on Friday, while the central bank will concurrently auction 50bn rupees of 30-year green bonds alongside an equivalent amount of standard 30-year sovereign debt.
Beyond corporate debt scarcity, macroeconomic expectations are reinforcing the appetite for duration. Lower-than-expected inflation in July, coupled with projections for robust economic growth in the first quarter of the 2027 fiscal year, has strengthened market consensus that the central bank will keep rates steady.
This marks a reversal from earlier positioning by debt market participants. When the Reserve Bank of India shifted its monetary policy stance to neutral in June 2025, investors actively trimmed their exposure to long-dated sovereign debt.
"Now, with expectations building that there could be a long pause in rates and maybe also a cut later, investors are likely to start buying long-term bonds again and rebuild the duration they had cut last year," said Alok Singh, head of treasury at CSB Bank. That renewed buying pressure is expected to provide further support to long-tenor sovereign prices.
