Why in news?
Date for repayment of the outstanding balance under ’8.27% Government Security 2020’ was released.
What is a Government Security?
- A Government Security (G-Sec) is a Government Issued (Central or State) Tradeable Instrument.
- G-Sec is a debt obligation of the government to fund their fiscal deficit, i.e., it acknowledges the debt obligation of the Government (as to say that the government will pay back on maturity).
- There are two types of such securities:
- Short Term – Maturity period is less than one year, and they are usually called Treasury Bills (T-Bills).
- Long Term – Maturity period is more than one year, and they are usually called Government Bonds or Dated Securities.
- G-Secs practically do not carry the risk of defaulting; hence, they can be called risk-free gilt-edged instruments.
- Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a means of borrowing funds.
Government securities issued by Indian Government
The Indian Central Government issues both Short-term T-Bills and Long terms Government Bonds / dated securities called State Development Loans (SDL). It also issues other instruments which are not fully tradeable, like savings bonds, national saving certificate etc., or special securities like oil bonds, fertilizer bonds, etc.
Yield of G-Secs
The term yield denotes the benefit or interest-rate a G-Sec provides, i.e., the interest rate of the bond.
- Seeing the increased bond yield, more and more buying of the bonds will ensue leading to increased demand of the bonds and we know that increased demand will command a higher price.
- So, an increased demand will propel the bond prices up thereby leading to a reduction in bond yield, which will further lead to reduction in demand.
- which will further lead to reduction in demand.
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