A $19 billion derivative bond trade held in India at risk on Modi’s new tax

A derivative trade that has driven billions of dollars of demand for India's sovereign bonds is threatened by a proposed tax on high-value insurance policies, intensifying the strain on the market from record government borrowing. Analysts suggest that the New Delhi plan to tax comprehensive insurance policies could lead to a drop in demand, causing the industry to invest less in bonds. In the past two years, banks have purchased the debt for interest-rate swaps offered to insurers, allowing them to secure future yields without expanding their assets. This is estimated to have resulted in investments of $19 billion in sovereign bonds by banks.

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