The Government of India on May 16, 2024, announced the third series of buyback of dated securities this month worth Rs 60,000 crore through an auction, to be conducted on May 21, 2024.
Four securities offered to be bought back include, 7.35% GS 2024 and 8.40% GS 2024 maturing on June 22, 2024, and July 28, 2024, respectively. Further 9.15% GS 2024 that will mature on November 14, 2024, and a FRB 2024 maturing on November 7, 2024, are on the list.
The RBI release said there is no notified amount for individual securities within the overall ceiling of Rs 60,000 crore.
The auction will be conducted using a multiple-price method electronically via the Reserve Bank of India's Core Banking Solution (E-Kuber) system on May 21, 2024, between 10:30 a.m. and 11:30 a.m. The auction results will be announced on the same day, and settlement is scheduled for May 22, 2024.
RBI said the government retains the discretion to decide the quantum of buyback of individual securities, and to accept more or less than the notified amount of Rs 60,000 crore. It can accept or reject any or all offers, wholly or partially, without providing reasons.
Government securities (G-Secs) buybacks, a key component of the Reserve Bank of India's Open Market Operations (OMOs) are a way for government to manage market liquidity. The buyback means the government redeeming existing securities prematurely from their holders. When there is too much liquidity in the market, the RBI sells securities to reduce the extra money. On the other hand, when there are liquidity constraints in the market, the RBI buys government securities to increase the money supply. Banks, as major holders of government bonds, benefit from increased liquidity in the banking system through such purchases.
Government securities (G-Secs) are bond instruments with zero practical risk of default as they represent a government debt obligation, and they can be in the form of short-term treasury bills or long-term bonds. The coupon rate of interest is credited to the investor bi-annually. The government has also announced a buyback of floating-rate bonds.
Floating-rate bonds are government securities that do not have a fixed coupon rate and, the interest rate varies throughout the bond's term based on fluctuations in a benchmark rate. This benchmark rate may be the repo rate, reverse repo rate, average T-bill rate etc. As the RBI's repo rates are still at the top of the curve cycle, and the US Fed is signalling to cut rates in 2024, interest rates may decrease. So, experts deem it wise to invest in long-term bonds with good yields to lock in the current rates, rather than floating rate bonds, which have variable rates. xxx.
