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Life Insurance Corporation of India has ramped up its activity in the bond derivatives market, entering into $1 billion worth of forward rate agreements (FRAs) with global lenders including JPMorgan Chase & Co. and Bank of America Corp., Bloomberg reported, citing people familiar with the matter.The deals, executed over the past two months, now represent 38% of the total $2.6 billion in FRA volumes since May, according to data from the Clearing Corporation of India’s website. LIC, which manages assets worth $630 billion, had first announced its intent to enter the bond derivatives market in November and has since significantly increased its trading volume after a few small early transactions, Bloomberg reported.The insurer’s rising footprint in this segment reflects a growing appetite among Indian financial institutions for sophisticated hedging instruments. FRAs allow companies like LIC to lock in future bond yields, providing protection against falling interest rates that could otherwise hurt fixed-income returns.LIC and Bank of America did not respond to Bloomberg’s queries, while JPMorgan declined to comment.In a typical FRA, the insurer agrees to buy a bond at a predetermined price at a future date, with the counterparty bank assuming the price risk in exchange for a premium. To manage exposure, banks often acquire matching long-term bonds. According to sources, LIC’s increased participation has lifted demand for long-term securities. Bloomberg reported that the last two bond auctions recorded the highest bid-to-cover ratios of the fiscal year starting April 1.
