Maturity Profile

Even though there is no ideal theory/concept of the maturity of the instruments, some important issues that should be considered while balancing the long-term and short-term maturities are: market preference, government costs, grouping of maturities, and development of yield curve. Benchmarking of the government securities is necessary considering its well-functioning market. This requires a careful approach to avoid disintegration and increase consolidation. The typical benchmark securities in our market are of 2, 3, 5 and 10 year's maturity, whereas in countries like the USA, the securities can have a maturity period up to 30 years.

When the government in 1992-93 revived the borrowings at market rates, the maturities of most of the securities were made below 10 years. High interest rate cyclic implementation of the auction system to achieve the market determined interest rates has made this compression necessary as it requires a market with short maturity structure. The result is the bunching of maturities with a tough task of managing liquidity. Since the last three years the RBI has made efforts towards longer maturities, and fixed rates to balance the maturity pattern. Some situations exist when the government does not confine to the perceived high rates of interest, and large mismatches occur between the asset liability of the banks and also greater risk of interest rates. The RBI has developed floating rate bonds and also taken steps to develop the STRIPS market in the Government Securities segment. To consolidate the maturity profile of the securities the RBI followed the method of re-opening the existing securities on price-based auction approach. Thus, the large borrowing (gross) program has proved advantageous to RBI to elongate and strengthen the profile.