Longer Gilts Ease Govt Borrowing Costs

With corporates reaping the benefit of low interest rates, can the government be left behind? Take a look at the costs of funds and the maturity profiles of government securities. The signal is clear: the government is also taking advantage of the low rates.

However, the basic difference in strategy between the corporates and the sovereign is that while the former are replacing their old high-cost debt with low-cost ones, the government is not able to retire its old high-cost debt in the absence of call and put options. But it is using the opportunity to lengthen maturity profiles and reduce the cost of borrowing.

The government in the current fiscal year (till February 15) has raised loans at an average of 9.30 per cent, 165 basis points below last year