A government security (G-Sec) is a tradeable instrument issued by the central government or state governments.
Features of G-Secs
- It acknowledges the government’s debt obligations.
- These securities can be both
- Short term (treasury bills — with original maturities of less than one year)
- Long term (government bonds or dated securities — with original maturity of one year or more).
- The central government issues both
- Treasury bills
- Bonds or dated securities.
- State governments issue only bonds or dated securities, which are called the state development loans.
- Since they are issued by the government, they carry no risk of default, and hence, are called risk-free gilt-edged instruments.
- FPIs are allowed to participate in the G-Secs market within the quantitative limits prescribed from time to time.
Factors which affect the prices of these securities
- Demand and supply of the securities.
- Changes in interest rates in the economy and other macro-economic factors, such as, liquidity and inflation.
- Developments in other markets like money, foreign exchange, credit and capital markets.
- Developments in international bond markets, specifically the US Treasuries.
- Policy actions by RBI like change in repo rates, cash-reserve ratio and open-market operations.