InvestorQ : How GOI bonds interest rates are calculated and seem they are not fixed? What is the difference as compared to FD/Bonds etc which only give fix rates?
seema Upadhyaya made post

How GOI bonds interest rates are calculated and seem they are not fixed? What is the difference as compared to FD/Bonds etc which only give fix rates?

Answer
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Anusha Savla answered.
10 months ago


Interest rate options on these bonds are based on the underlying GOI 10-year bonds – the 7.26 percent 2029 bond and the 6.45 percent 2029 bond. The unit of trading is Rs 2 lakh face value of GOI securities, corresponding to 2000 units.

Even though the interest rates on these securities are fixed, NSE has made available a new addition in the asset class so that the institutional investors can manage the risk through a non-linear product that is otherwise not available to them. Market participants can use options to trade interest and hedge interest rate risk on a transparent platform.

Investors can choose from the interest rates to invest in bonds and the same shall be the applicable fixed interest rates. The contracts will be available for 3 serial monthly contracts followed by 3 quarterly contracts of the cycle March, June, September, and December. 

For example: For bonds based on 7.26% coupon rate, underlying shall be future contracts based on 7.26% central government security having maturity on January 14, 2029, which means under these bonds the investment shall be only under bonds that could generate a coupon rate of 7.26% so as to manage investment risk. Similarly under 6.45% interest options, underlying shall be Futures contracts based on 6.45% Central Government Security having maturity on October 07, 2029.

These options are made available for the investors to have assets for the investors from which they can decide upon the best suitable alternative.