What does following news means? I am not sure how much od the details are clear at this point…
My assumption was atleast GS Bonds wont do this, so what really will happen to intrest planned with this bonds, will RBI buy them back at greater then their face value?
Also has something like this done before? My assumption is principal would be returned in full…
Also what is the list of Bonds which will be there & finally what does auction mean?
Sorry a lot of questions, not panicking but trying to understand bond investments better…
This is not a life changing event. Do not panic. It does not affect you
jokes aside, this is pretty standard transactions done by RBI.
What RBI is doing is opened up auction for 3 series of bonds which were maturing this year.
So Institutional investors who own this bond can put in a bid and sell this bonds back to RBI rather than waiting for maturity date (later in the year) to get the money back.
This bonds will be bought at Market price and only at price which RBI likes, that is why they are conducting auction.
There is no compulsion on anyone to sell it back. Bonds which are not bought back, continue to remain government bonds. So for average investor, this does not really matter.
RBI does this (and many other complex transaction) to manage:
liquidity in market
Govt borrowing program
to same extent short term interest rate (and many other objectives)
As you can see, RBI wanted to buy 40K Cr. around 53K Cr worth of offer were received. But RBI bought back only 10,5K Cr worth of bonds.
Because those were the only offer which met RBI’s requirement of price.
So open market transaction, those who wanted to sell could sell and those who did not (or could not) sell will continue to hold this bond.
