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How government bonds work

The rate of interest that the government has to pay on its borrowing is determined by the market through an auction process.

ET CONTRIBUTORS|
Jan 28, 2019, 06.30 AM IST
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The government bonds have maturities ranging from one to 30 years.
1. Government bonds are issued by the government to typically raise funds required to bridge its fiscal deficit.

2. These bonds have maturities ranging from one to 30 years.

3. The most common type of government securities issued are fixed coupon bonds having a fixed coupon rate, with semiannual interest payments and are redeemable at par.

4.The rate of interest that the government has to pay on its borrowing is determined by the market through an auction process.

5. The interest rate on government securities is the lowest for that particular tenure as government bonds are considered to be free of credit risk. The other bonds of same tenure borrow at a higher rate.

(The content is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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