 "Sovereign gold bonds' trading begins")
The first tranche of sovereign gold bonds issued last November, are trading at a huge premium to their issue price, quoting at the price prevailing in the spot market here.
The earlier expectation was that the bonds would trade at a discount to the market price, as the segment might not be so liquid.
The first tranche of bonds, issued last November at Rs 2,684 per gramme, opened on Monday at the BSE at Rs 2,986 and closed at Rs 3,180 a gm, almost seven per cent higher than the opening price, with 375 gms volumes in 29 trades.
On the National Stock Exchange, 361 gms of bonds were traded and closed at Rs 3,175 a gm, 18 per cent higher than the issue price and up by nearly six per cent from the closing price in Mumbai’s spot market. The benchmark IBJA-999 purity, equivalent to gold bond purity, closed at Rs 3,007 a gm in Mumbai.
The peak on NSE was Rs 3,258 a gramme; on the BSE, Rs 3,218 was quoted. There has been no gold bond issue after March and gold has been in a bullish zone, which has increased trading interest, resulting in traders/investors ready to pay a higher price.
“It is a new instrument on the stock exchange and the premium it is commanding today, over and above spot market price, seems an aberration. It might not continue,” said Jayant Manglik, president, retail distribution, at Religare Securities.
These bonds have in-built accrued interest, annualised at 2.75 per cent on the price of issue. The first tranche was issued as part of a plan to control import of gold, while giving an option to investors for earning gold-like return. The bonds are denominated in terms of gold grammes and the issue price is formula-based, on a price from the Indian Bullion and Jewellers Association (IBJA).
So far, the government has issued three tranches of bonds. The first was in November 2015, at a gold price of Rs 2,684 a gm. The second was in January this year at a gold price of Rs 2,600 a gm and the third in March at Rs 2,900 a gm. A total of around five tonnes worth of gold bonds have been sold by the government.
These bonds are considered a part of the central government borrowing programme and have a maturity of eight years. Listing on stock exchanges provides them the liquidity to compete with gold exchange-traded funds (ETFs). Gold ETF purchases have to be backed by buying of physical gold; these sovereign bonds are not backed by physical gold but the government which is the issuer through the central bank takes the price risk and also pays 2.75 per cent interest on the issue price annually, every six months.
Investors get the benefit of the gold price, no fear of holding physical gold and tax benefits, beside the annual 2.75 per cent interest.
On Monday's gold was also trading high on two major events that could significantly impact the level — the US Federal Reserve meeting which concludes on Wednesday on a rate increase and the June 23 vote on Britain’s possible exit from the European Union. Uncertainty on the latter has led to huge buying in gold and prices were quoted at $1,285 an ounce in the international market. In Mumbai, standard gold of 995-purity closed Rs 480 higher from Friday's close, at Rs 29,910 for 10g, and 999-purity at Rs 30,070 per 10g.
On the BSE, the bonds are traded in the G-group of the equity segment. On the NSE, too, in the capital market segment.
GOLD BOND TRADING ON EXCHANGE
The earlier expectation was that the bonds would trade at a discount to the market price, as the segment might not be so liquid.
The first tranche of bonds, issued last November at Rs 2,684 per gramme, opened on Monday at the BSE at Rs 2,986 and closed at Rs 3,180 a gm, almost seven per cent higher than the opening price, with 375 gms volumes in 29 trades.
On the National Stock Exchange, 361 gms of bonds were traded and closed at Rs 3,175 a gm, 18 per cent higher than the issue price and up by nearly six per cent from the closing price in Mumbai’s spot market. The benchmark IBJA-999 purity, equivalent to gold bond purity, closed at Rs 3,007 a gm in Mumbai.
The peak on NSE was Rs 3,258 a gramme; on the BSE, Rs 3,218 was quoted. There has been no gold bond issue after March and gold has been in a bullish zone, which has increased trading interest, resulting in traders/investors ready to pay a higher price.
“It is a new instrument on the stock exchange and the premium it is commanding today, over and above spot market price, seems an aberration. It might not continue,” said Jayant Manglik, president, retail distribution, at Religare Securities.
These bonds have in-built accrued interest, annualised at 2.75 per cent on the price of issue. The first tranche was issued as part of a plan to control import of gold, while giving an option to investors for earning gold-like return. The bonds are denominated in terms of gold grammes and the issue price is formula-based, on a price from the Indian Bullion and Jewellers Association (IBJA).
So far, the government has issued three tranches of bonds. The first was in November 2015, at a gold price of Rs 2,684 a gm. The second was in January this year at a gold price of Rs 2,600 a gm and the third in March at Rs 2,900 a gm. A total of around five tonnes worth of gold bonds have been sold by the government.
These bonds are considered a part of the central government borrowing programme and have a maturity of eight years. Listing on stock exchanges provides them the liquidity to compete with gold exchange-traded funds (ETFs). Gold ETF purchases have to be backed by buying of physical gold; these sovereign bonds are not backed by physical gold but the government which is the issuer through the central bank takes the price risk and also pays 2.75 per cent interest on the issue price annually, every six months.
Investors get the benefit of the gold price, no fear of holding physical gold and tax benefits, beside the annual 2.75 per cent interest.
On Monday's gold was also trading high on two major events that could significantly impact the level — the US Federal Reserve meeting which concludes on Wednesday on a rate increase and the June 23 vote on Britain’s possible exit from the European Union. Uncertainty on the latter has led to huge buying in gold and prices were quoted at $1,285 an ounce in the international market. In Mumbai, standard gold of 995-purity closed Rs 480 higher from Friday's close, at Rs 29,910 for 10g, and 999-purity at Rs 30,070 per 10g.
On the BSE, the bonds are traded in the G-group of the equity segment. On the NSE, too, in the capital market segment.
GOLD BOND TRADING ON EXCHANGE
- Available in G Group of the equity cash segment on BSE and in the capital market segment on NSE
- T+2 settlement applicable on these bonds
- No securities transaction tax
- Minimum trading unit of 1 gm and in multiples
- Long-term capital gains tax is applicable after three years, the same will be zero if redeemed after full maturity
- No TDS applicable on interest accrued
- SGBs can be used as collateral for bank loans