The prices at the Exchange is around 106 .
The issue from Government is 111.
Why should I buy at such a premium ? What is the objective here ?
The G-Sec in the secondary market may be trading cheaper because of market demand, interest rate changes, or lower liquidity.
As far as I know, this is a primary issue, so the price is set at ₹111. Some investors might still opt for it at this price because they don’t have access to the secondary market. Also, in the secondary market, the required quantity may not always be available.
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+1
Just one correction, the price is the tentative price derived from the current yield of similar duration bonds. However the actual price will be decided by the auction that will take place this Friday
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Hi @Rahul_Roy , The price difference between the G-Sec primary market (â‚ą111) and secondary market (â‚ą106) is normal and expected. When you place a bid in the primary market, the exchange temporarily blocks funds at the tentative price, but the actual price will be determined at the RBI auction held on every Friday.
Any excess amount will be reversed back to your ledger after the auction. This price of G-sec bid is calculated based on the current yields of bonds with similar durations. The main reason to invest in G-Sec bonds is to earn the yield on G-sec investments.
Secondary market prices are typically lower due to liquidity constraints - fewer buyers and sellers result in different pricing dynamics. Secondary market pricing fluctuates based on market participants, while primary market gives you direct access to purchase G-sec securities in the auction market even if you need larger quantities that might not be readily available in the secondary market.
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Which brings me to very vital question , I would have created a separate thread for it. Given the condition of the liquidity of the Gsec in the secondary market - extremely illequid, where do I actually sell these bonds ?
At this point it seems like I can buy the bonds from Primary Market but cannot sell there. Buy it from Secondary market, but selling would be painful coz of limited liquidity. What are my options here to sell these bonds ?
Hi @Rahul_Roy , When a government security has low or no liquidity, you can only sell it if there are buyers interested in purchasing it. You can check the market depth to see how many buyers and sellers are active for that particular security.
If the security is too illiquid (meaning very few or no buyers are available), you might have no choice but to hold onto it until it matures. At maturity, you’ll receive the principal amount.
Investment in bonds are like fixed deposits, you invest, to lock-in the interest rate, with the intention to hold till maturity.
The longer the time to maturity, the more chances of it being illiquid.
So, it’s advisable to invest directly in G-secs, if your time horizon matches with the maturity period of these bonds.(i.e., HTM)
If you are looking for liquidity and easy exit, it is better to invest in G-secs through Gilt funds.
Here is the issue with gsec auction process. Some bonds are of 15-20year duration and I dont even know at which price it will be auctioned. Because the ultimate yield and profit depends only on the price at which you purchased the bonds. Seems highly risky for a 15 year investment which in all likelihood you wont even be able to sell in between the time period without incurring a loss.
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I think the assumption here is that the “professionals” know best and hence the auction will determine a price such that the ytm is close to the prevalent yields. And in any case, retailers with small investment amounts can always find liquidity in the secondary markets and decide for themselves.
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