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RBI Bond Forward Norms: Boost for State Bonds

29 April 20251 min read
ECONOMYRBI Bond ForwardNorms: Boost forState Bonds29 April 2025safalsetu.com

Why in the news

RBI’s new rules on bond forwards, effective 2 May 2025, were expected to lift demand for contracts linked to 10-15 year state bonds.

Key facts

  • Effective 2 May 2025; helps long-term investors manage cash flows and interest rate risk and broadens interest-rate derivatives.
  • Bond forward: contract to buy or sell a government bond at a fixed price on a future date, with physical delivery (unlike FRAs’ cash settlement).
  • Demand likely strongest for 10-15 year SDLs; spreads over benchmark G-secs are about 29 bps for 10-year SDLs.

Participants

  • Insurers, pension funds and mutual funds can hedge better.
  • Market makers: scheduled commercial banks and standalone primary dealers.
  • Excluded: small finance banks, payment banks, local area banks and regional rural banks.

Significance

  • Better pricing of rate risk across maturities and a deeper G-Sec market.

Exam angle

  • Start date: 2 May 2025; contract type: bond forward.
  • Difference from FRA: physical delivery.

Test yourself

1. From which date do RBI's new bond forward guidelines come into effect?

The guidelines apply from 2 May 2025.

2. How do bond forwards differ from forward rate agreements (FRAs), per the notes?

Bond forwards permit physical delivery, whereas FRAs settle in cash.

3. Which entity is excluded from bond forward market making under the RBI norms?

Regional rural banks are among the excluded categories.

This topic is part of Daily Current Affairs 29 April 2025 (22 topics).

All topics of the dayDay quizApril 2025

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