What Are Floating Rate Bonds? Auction for Sale of Government of India Floating Rate Bonds 2024

The Government of India announced the sale (re-issue) of Government of India Floating Rate Bonds 2024 for a notified amount of ₹ 3000 crore (nominal) through price based auction and 7.17% Government Stock, 2028 for a notified amount of ₹ 8,000 crore (nominal) through price based auction.

Auction for Sale of Government of India
  • The auctions will be conducted using multiple price method by the Reserve Bank of India (RBI) , Mumbai Office.
  • Up to 5% of the notified amount of the sale of the stocks will be allotted to eligible individuals and institutions through Scheme for Non-Competitive Bidding Facility in the Auction of Government Securities.

What Are Floating Rate Bonds?

  • Bonds whose interest amount fluctuates in step with the market interest rates or some other external measure are called floating rate bonds.
  • Price of floating rate bonds remains relatively stable because neither a capital gain nor a capital loss occurs as market interest rates go up or down.

What are Government Stocks and Bonds?

  • These bonds are sold by a government to finance its budget deficit (the difference between what it gets in taxes and what it spends) .
  • Government bonds are usually considered to be a very safe form of investment

Bonds Offered by Government

The Government Securities are of the following types.

  • Dated Securities: Dated Securities have fixed maturity identified with the date of maturity. They have either fixed rate of interest or coupon rates which are semiannually payable.
  • Zero Coupon Bonds: Zero Coupon Bonds are issued at Face Value and redeemed at Par Value. They were issued during 1990s, but not now.
  • Floating Rate Bonds: These refer to the changing interest rate bonds discussed above.
  • Call⟋Put Option Bonds: The call and put option means that the bond holder can sell it back to the government and Government could buy it from the bond holder, after a prefixed period. First issued in 2002.

What is Price Based Auction?

  • A price based auction is conducted when Government of India re-issues securities issued earlier.
  • Bidders quote in terms of price per ₹ 100 of face value of the security (e. g. , ₹ 102.00, ₹ 101.00, ₹ 100.00, ₹ 99.00, etc. , per ₹ 100⟋-) .
  • Bids are arranged in descending order and the successful bidders are those who have bid at or above the cut-off price.

Examrace Team at Aug 21, 2021