ULTRA LONG GOVERNMENT SECURITIES
About:
- The Central Government or the State Governments may issue tradable securities, known as G-Secs.
- The government can borrow money from the public through the issuance of G-Secs, a type of debt instrument, to cover its fiscal deficit.
- A debt instrument is a type of financial instrument that symbolizes a contractual duty on the part of the issuer to reimburse the holder for a predetermined sum of money, also referred to as the principal or face value, on a given date.
- It admits the Government’s financial responsibility.
- These securities can be long-term (usually called government bonds or dated securities with an original maturity of one year or more) or short-term (called treasury bills, with original maturities of less than one year; currently issued in three tenors, 91-day, 182 day, and 364 day).
- In India, state governments only issue bonds or dated securities known as State Development Loans (SDLs), while the central government issues both treasury bills and bonds or dated securities
- G-Secs are referred to as risk-free gilt-edged instruments because they essentially have no default risk.
- High-grade investment bonds known as gilt-edged securities are made available to governments and big businesses as a way to borrow money.
- To modify the conditions of the money supply, the RBI conducts Open Market Operations (OMOs) for the sale or purchase of G-secs.
- The RBI buys back G-secs to add liquidity to the system after selling them to extract liquidity.
Bond Yield:
- The return an investor receives on a bond is known as the bond yield.
- The yield is computed mathematically by dividing the bond’s current market price by the annual coupon rate.
- The relationship between price and yield is inverse: a bond’s yield decreases as its price increases and vice versa.
Bond:
- It serves as a means of borrowing money. A corporation or the government of a nation may issue bonds in order to raise money.
Coupon Rate:
- It is the interest rate that bond issuers pay on the face value of the bond.
Types
- treasury Bills (T-bills)
- Cash Management Bills (CMBs)
- Dated G-Secs
- State Development Loans (SDLs)