Reserve Bank widening bond lending may shield bears from short squeezes

Some entities like insurance companies are not permitted to borrow money but have a large stock of securities and the move will enable them to lend bonds

Indian central bank’s plan to allow a broader set of investors, including insurers and asset managers, to borrow and lend government debt securities may shield bond bears from short squeezes.
 

The change in the rule proposed by the Reserve Bank of India could prevent episodes of the so-called ‘repo squeezes,’ seen in the government bond market when some large state-run banks refuse to lend the securities to those running overnight outright short positions forcing them to cover it at losses.

Under the current rules, only banks can lend securities via the so-called Clearcorp Repo Order Matching System, an electronic anonymous