Chapter 5 - Government Bonds

Abstract

Government debt is the second largest securities market in India by value. Large fiscal deficits imply a considerable scale of government bond issuance. As a consequence, the Indian government bond market capitalization grew sharply. However, the market has not developed as rapidly as the size of the outstanding debt has increased. This chapter describes the products that make up the government bond market and derivative products based on government debt, market mechanisms under which these products trade, and the regulatory framework. Government debt is the second largest securities market in India by value. Large fiscal deficits imply a considerable scale of government bond issuance. The largest issuer of government debt is the central government, although there have increasingly been debt issues by state governments as well. Government of India (GOI) bonds define the riskless yield curve and have a considerable significance. The Indian market is divided into long-term and short-term debt products. Short-term debt products are money market products, have short maturities, and tend to be indicative of monetary policy in that country. Like money market products worldwide, they are issued and traded at a discount to face value. A collateralized borrowing and lending obligations (CBLO) market is an exchange-traded repo where there is no credit risk owing to the presence of collateral. Participation in the CBLO market is not limited to banks. Longer maturity government debt products are the GOI Treasury Bonds ranging from greater than a year up to 30 years.