India recently released its first-ever ultra-long bonds this week which totals Rs 10,000 crore for a 50-year bond. Analysts anticipate that this will lead to a reduction in government borrowing expenses.
Previously, a 40-year bond, maturing in 2063, was the longest-duration bond offered by India.
The inaugural auction of this 50-year bond of India on Friday saw robust demand signalling a growing interest in ultra-long-term securities among insurance companies and pension funds.
The RBI set the cut-off yield on the bond at 7.46%, exceeding market expectations. The RBI received 216 bids worth Rs 40,200 crore against the notified amount to raise Rs 10,000 crore via the 50-year government bond.
What are government bonds/ government securities? Government bonds are debt securities issued by the Government of India to raise funds for various purposes including financing budget deficits, infrastructure development, and other government projects.
They are considered to be one of the safest investment options in India as they are backed by the full faith and credit of the government.
Government bonds in India are available in various tenures ranging from short-term to long-term, typically from 91 days to 40 years, previously. Now, the government has launched these securities for a tenure of 50 years as well.
Government bonds pay periodic interest to bondholders. The interest rates on these bonds are typically fixed, although there are some variable-rate bonds as well.
These bonds can be bought and sold in the secondary market, providing investors with liquidity if they wish to sell their bonds before maturity.
These bonds are actively traded in the secondary market and their prices can fluctuate based on changes in interest rates and market conditions. This means that their yield may vary depending on the demand for and supply of these bonds.
In India, some government bonds offer tax benefits such as tax-free interest income or tax deductions for the amount invested. These benefits may vary depending on the specific bonds and the prevailing tax laws.
Government bonds play a crucial role in the Indian financial system as they serve as a benchmark for interest rates in the economy and provide a safe and reliable investment option for individuals, financial institutions, and other entities.
Investors interested in government bonds can participate in government bond auctions or purchase them in the secondary market through financial institutions, including banks, and brokerage firms.
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