InvestorQ : What exactly is a government security in the bond markets? What are the other popular debt instruments in the market?
Dilmini Mercia made post

What exactly is a government security in the bond markets? What are the other popular debt instruments in the market?

Answer
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NISHA Nayak answered.
1 year ago


Government Security

A government security is a tradable instrument issued by the central government or the state governments. It acknowledges the government’s debt obligation. Such securities are short-term (usually called treasury bills, with original maturities of less than one year) or long-term (usually called government bonds or dated securities with original maturity of one year or more).

Some of the other popular types of debt instruments include:

Treasury Bills

Treasury bills (T-bills) are money market instruments, i.e., short-term debt instruments issued by the Government of India, and are issued in three tenors—91 days, 182 days, and 364 days. The T-bills are zero coupon securities and pay no interest. They are issued at a discount and are redeemed at face value on maturity.

Cash Management Bills

Cash management bills (CMBs) have the generic characteristics of T-bills but are issued for a maturity period less than 91 days. Like the T-bills, they are also issued at a discount, and are redeemed at face value on maturity. The tenure, notified amount, and date of issue of the CMBs depend on the temporary cash requirement of the government. The announcement of their auction is made by the RBI through a Press Release that would be issued one day prior to the date of auction. The settlement of the auction is on a T+1 basis.

Dated Government Securities

Dated government securities are long-term securities that carry a fixed or floating coupon (interest rate), which is paid on the face value, payable at fixed time periods(usually half-yearly). The tenor of dated securities can be up to 30 years.

State Development Loans

State governments also raise loans from the market. State Development Loans (SDLs) are dated securities issued through an auction similar to the auctions conducted for the dated securities issued by the central government. Interest is serviced at half-yearly intervals, and the principal is repaid on the maturity date. Like the dated securities issued by the central government, the SDLs issued by the state governments qualify for SLR. They are also eligible as collaterals for borrowing through market repo as well as borrowing by eligible entities from the RBI under the Liquidity Adjustment Facility (LAF).