RBI changes G-Sec Auction Methodology
Reserve Bank of India (RBI), while reviewing market conditions and market borrowing program of government, has decided that benchmark securities of 2-year tenor, 3-year tenor, 5-year tenor, 10-year tenor & 14-year tenor and Floating Rate Bonds (FRBs) will be issued using uniform price auction method. However, for benchmark securities of 30-year and 40-year, auction will continue to be multiple price-based auction.
What is Government Security?
G-sec is a tradable instrument which is issued by Central Government or State Governments. It acknowledges Government’s debt obligation. G-Secs are of two types:
- Short Term– They are usually called treasury bills. They have original maturities of less than one year. It is issued in three tenors viz., 91-day, 182-day and 364-day.
- Long Term– They are usually called Government bonds or dated securities having original maturity of one year and more.
Who issues these securities?
In India, Treasury bills and bonds or dated securities are issued by central government while State Governments issue only bonds or dated securities. Bonds issued by State governments are called as State Development Loans (SDLs).
Risk Associated with G-Secs
G-Secs carries no risk of default. Thus, they are also called as “risk-free gilt-edged” instruments. Gilt-edged securities are high-grade investment bonds which are offered by governments and large corporations to borrow funds.
Background
Dutch Republic was the first state to finance its debt through bonds. It assumed bonds issued by city of Amsterdam in 1517. The average interest rate fluctuated around 20% then.
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Month: Current Affairs - July, 2021