DEFINITION of 'Government Security'
A bond (or debt obligation) issued by a government authority, with a promise of repayment upon maturity that is backed by said government. A government security may be issued by the government itself or by one of the government agencies. These securities are considered low-risk, since they are backed by the taxing power of the government.
Government securities promise repayment of principal upon maturity as well as coupon or interest payments periodically. Examples of government securities include savings bonds, treasury bills and notes. Government securities are usually used to raise funds that pay for the government's various expenses, including those related to infrastructure development projects. Because they are low risk, the return on the securities is generally low.
A bond (or debt obligation) issued by a government authority, with a promise of repayment upon maturity that is backed by said government. A government security may be issued by the government itself or by one of the government agencies. These securities are considered low-risk, since they are backed by the taxing power of the government.
Government securities promise repayment of principal upon maturity as well as coupon or interest payments periodically. Examples of government securities include savings bonds, treasury bills and notes. Government securities are usually used to raise funds that pay for the government's various expenses, including those related to infrastructure development projects. Because they are low risk, the return on the securities is generally low.
FPI’s interest on India’s corporate bonds
Foreign funds are buying more Indian corporate bonds as there is no sign that the $25-billion limit on government securities — close to being exhausted — is going to be raised. Overseas portfolio investors have used up nearly half the overall investment limit in corporate bonds compared with 37 per cent four months ago. But foreign portfolio investors, or FPIs, can invest another Rs 1,23,580 crore to exhaust the full limit of $51 billion (about Rs 3,11,813 crore) in corporate bonds.
"The fiscal and inflation target looks more achievable now than ever before," said Ashish Vaidya, executive director and head of trading and asset liability management at DBS Bank. It places India in a sweet spot as the country gets the opportunity and time to rebuild its economy. "This helps create a positive trigger on both the rates and equity markets side and, hence, overseas investors find India an attractive investment destination, especially at a time when the rest of the world is struggling for growth," he said.
According to Prime Database, total monthly corporate bond issuances have surged 76 per cent to about Rs 43,880 crore in September from Rs 24,874 crore in June. With falling crude oil prices, India's fiscal deficit is set to improve.
It is estimated at 4.1 per cent of GDP in 2014-15. In September, retail inflation rose at a slowerthan-expected 6.46 per cent from a year earlier, the lowest since January 2012. RBI aims to bring it down to 6 per cent by January 2016.
Globally, the growth outlook is bleak and developed economies like the UK and other European countries are expected to keep interest rates low. With US yields falling close to 2 per cent, arbitrage opportunities may be drawing more funds. The FPIs' liking for India is reflected in corporate bonds issued by state-owned companies, particularly those with more than 50 per cent government holdings, which are treated as semi-government securities.
Foreign funds are buying more Indian corporate bonds as there is no sign that the $25-billion limit on government securities — close to being exhausted — is going to be raised. Overseas portfolio investors have used up nearly half the overall investment limit in corporate bonds compared with 37 per cent four months ago. But foreign portfolio investors, or FPIs, can invest another Rs 1,23,580 crore to exhaust the full limit of $51 billion (about Rs 3,11,813 crore) in corporate bonds.
"The fiscal and inflation target looks more achievable now than ever before," said Ashish Vaidya, executive director and head of trading and asset liability management at DBS Bank. It places India in a sweet spot as the country gets the opportunity and time to rebuild its economy. "This helps create a positive trigger on both the rates and equity markets side and, hence, overseas investors find India an attractive investment destination, especially at a time when the rest of the world is struggling for growth," he said.
According to Prime Database, total monthly corporate bond issuances have surged 76 per cent to about Rs 43,880 crore in September from Rs 24,874 crore in June. With falling crude oil prices, India's fiscal deficit is set to improve.
It is estimated at 4.1 per cent of GDP in 2014-15. In September, retail inflation rose at a slowerthan-expected 6.46 per cent from a year earlier, the lowest since January 2012. RBI aims to bring it down to 6 per cent by January 2016.
Globally, the growth outlook is bleak and developed economies like the UK and other European countries are expected to keep interest rates low. With US yields falling close to 2 per cent, arbitrage opportunities may be drawing more funds. The FPIs' liking for India is reflected in corporate bonds issued by state-owned companies, particularly those with more than 50 per cent government holdings, which are treated as semi-government securities.
