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Sovereign Bonds

Posted on : 14 Dec 2019

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  • Sovereign debt is one of the oldest investment asset classes in the world. National governments have been issuing bonds for centuries, so the risks are well-known.
  • Sovereign debt forms a significant part of many institutional investment portfolios, and it is also increasingly popular with individual investors.
  • The issuer of a bond promises to pay back a fixed amount of money every year until the expiry of the term, at which point the issuer returns the principal amount to the buyer.
  • When a government issues such a bond it is called a sovereign bond. Indian government’s domestic borrowing is crowding out private investment and preventing the interest rates from falling even when inflation has cooled off and the RBI is cutting policy rates.
  • If the government was to borrow some of its loans from outside India, there will be investable money left for private companies to borrow; not to mention that interest rates could start coming down.
  • A sovereign bond issue will provide a yield curve which is a benchmark for Indian corporates who wish to raise loans in foreign markets.
  • This will help Indian businesses that have increasingly looked towards foreign economies to borrow money.   

Article Related Questions

  1. With reference to Sovereign Bonds, consider the following statements
    1.Sovereign debt is one of the oldest investment asset classes in the world.
    2.The issuer of a bond promises to pay back amount based on the market situation and changing interest rates.
    Choose the correct option from the following

  2. 1.1 only

    2.2 only

    3.Both 1 and 2

    4.Neither 1 nor 2

    Right Ans : 1 only

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