Bond Buyback

About Bond Buyback:

• It is a process whereby the central government and state governments buy back their existing securities, by redeeming them prematurely, from the holders.
• Bond buybacks is a liability management tools widely used in government securities markets to manage refinancing and liquidity risks.
• It enables issuers to retire an outstanding debt before its maturity date against a cash payment.
• The objectives of buyback can be
  • Reduction of cost (by buying back high coupon securities),
  • Reduction in the number of outstanding securities and improving liquidity in the G-Secs market (by buying back illiquid securities) and
  • Infusion of liquidity in the system.

What is a Bond?

• It is a debt instrument in which an investor loans money to an entity (typically corporate or government) which borrows the funds for a defined period of time at a variable or fixed interest rate.
• Bonds are used by companies, municipalities, states and sovereign governments to raise money to finance a variety of projects and activities. Owners of bonds are debt holders, or creditors, of the issuer.