50 Year Government Bonds: What Are They and Why Invest in Them?

 

50 Year Government Bonds: What Are They and Why Invest in Them?

Government bonds are debt securities issued by the government to borrow money from the public. They are considered to be safe and low-risk investments, as they are backed by the sovereign guarantee of the government. They pay a fixed or variable interest rate to the investors and are redeemable at maturity.

The maturity period of government bonds can range from a few months to several decades. The longer the maturity period, the higher the interest rate and the lower the price sensitivity to interest rate changes. However, longer maturity also means higher exposure to inflation risk and default risk.

One of the longest maturity periods for government bonds is 50 years. This means that the investors who buy these bonds will receive interest payments every year for 50 years and get back their principal amount at the end of 50 years. Only a few countries in the world actively issue 50 year government bonds, such as Canada, France, Italy, Japan, Mexico, Spain, and the UK.

Recently, India has also joined this club by announcing its first-ever issuance of 50 year government bonds. The government plans to raise Rs 30,000 crore through these ultra-long bonds in three tranches by March 20241. The first tranche of Rs 10,000 crore was launched on November 1, 2023, and was fully subscribed on the same day2. The issue price of the first tranche was fixed at Rs 5923 per gram of gold, with a discount of Rs 50 for online applicants2. The issue date of the bonds was September 20, 20232.

The decision to introduce 50 year government bonds in India was driven by the market demand for longer duration securities, especially from insurance companies and pension funds1. These institutional investors have long-term liabilities that need to be matched with long-term assets. By investing in 50 year government bonds, they can reduce their asset-liability mismatch and hedge against interest rate risk.

The benefits of investing in 50 year government bonds are:

• Safety and security: The bonds are backed by the sovereign guarantee of the government and have a AAA rating from CRISIL and ICRA2. The bonds are also secured by a first charge on the cash flows and assets of NHAI InvIT, an infrastructure investment trust that owns and operates toll-operated road assets across India3.
• Interest income: The bonds pay a fixed interest rate of 7.9% per annum on the nominal value of the bonds, which is payable semi-annually2. The interest income is taxable as per the income tax rules.
• Capital appreciation: The bonds are linked to the market value of NHAI InvIT units, which are expected to appreciate over time due to the growth potential of India’s road infrastructure sector3. The investors can also trade the bonds on the stock exchanges after a lock-in period of one year from the date of allotment2.
• Liquidity and flexibility: The bonds have a tenor of 24 years, with an option of premature redemption after the fifth year on the interest payment dates2. The investors can also exit the bonds through the secondary market after a lock-in period of one year2.
• Convenience and affordability: The bonds are denominated in rupees, with a face value of Rs 10,000 per bond and a minimum investment of one bond2. The investors can apply for the bonds online through designated banks, post offices, stock holding corporations, clearing corporations, and stock exchanges2. The online applicants are eligible for a discount of Rs 50 per bond on the issue price2.

The risks of investing in 50 year government bonds are:

• Inflation risk: The bonds have a fixed interest rate that does not change with inflation. If inflation rises over time, the real value of the interest payments and the principal amount will decline. This will reduce the purchasing power of the investors and erode their returns.
• Default risk: The bonds are backed by the sovereign guarantee of the government, which means that the government will repay the principal and interest on time. However, there is always a possibility that the government may default on its obligations due to unforeseen circumstances or political instability. This will result in losses for the investors.
• Market risk: The bonds are subject to market fluctuations due to changes in interest rates, economic conditions, investor sentiments, and other factors. If interest rates rise over time, the market value of the bonds will fall. This will result in capital losses for the investors if they sell their bonds before maturity.

The bottom line is that 50 year government bonds are a safe and lucrative investment option for long-term investors who want to earn regular income and capital appreciation from their investment. However, they also entail some risks that need to be considered before investing. Therefore, investors should do their research and understand the pros and cons of investing in 50 year government bonds before making their decision.

If you want to know more about 50 year government bonds, you can refer to these sources:

• India’s 50-year bond to debut this week: All you need to know: This article gives an overview of the features and benefits of investing in 50 year government bonds in India.
• India Government Bonds - Investing.com India: This website provides detailed information on the current yield, price, and performance of various government bonds in India.
• NHAI InvIT Bonds: A New Way to Invest in India’s Road Infrastructure: This blog post explains what NHAI InvIT bonds are and why they are linked to 50 year government bonds.
  
  

  Interested in buying bonds? Contact us : 095144 44118
  
  

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