Among securities, a significant segment of the market received such an instrument as T-bills. What it is? What does this abbreviation - GKO hide? Explanation of this word means "government short-term bonds." What are they needed for?
By the way, there is another interpretation of this abbreviation - “GKO of the USSR”, the decoding of which has nothing to do with the world of finance and means “State Defense Committee of the Union of Soviet Socialist Republics”. This will not be about this, but specifically about bonds.
Initial release
What is GKO? The interpretation of this term implies that these papers were a type of bills that exist in the United States of America. Government short-term bonds were issued in the Russian Federation in May 1993. Their role was to cover the state budget deficit. Since these securities are classified as short-term in the financial system, it is logical that they cannot be used for long-term investments. The first issue of government short-term bonds (T-bills) amounted to ten thousand rubles in nominal value, but rather quickly the nominal value was raised to one million rubles.
Bond income
What is T-bills and what is their income? The investor makes a profit by selling state short-term bonds at various auctions at a price that is below the nominal (at a discount). These securities can be redeemed at par by transferring money to the holder’s account in non-cash form. In this case, income is the difference between the price for the purchase of T-bills and their nominal value at an auction in the secondary market or at their initial placement.
Who can buy short-term government bonds?
Individuals and legal entities may be owners of T-bills. However, the participation of individuals in the market for the turnover of these bonds is hindered by some purely technical reasons. The first issue of state short-term bonds GKO authorized to conduct all operations with them only through dealers, which are large financial companies and banks. In most cases, they are not interested in cooperating with private capital. Many banks and financial enterprises set certain limits on the amount of funds that investors need to conduct transactions with bonds through a dealer. At the beginning of the ninety-seventh year, this amount ranged from three hundred to five hundred million Russian rubles.
Release History
What does the term GKO mean? The decoding of the name of this financial instrument, as we have already mentioned, is “government short-term bonds”. Therefore, they were released for short periods of twelve, six and three months. In 1997, the issuer (Ministry of Finance of the Russian Federation) changed the structure of issues of such an instrument as short-term bonds, leaving only six-month and twelve-month bonds in use. Since GKOs, the decoding of which focuses on short periods of validity, are issued in alternating series, the issuer has the opportunity to systematically redeem previously issued series by issuing new ones. These bonds are non-coupon, so the investor can purchase them at a price below the nominal. When placing a series, the volume of issues at par should be higher by a discount value, which is established during the auction sale of these securities.
Ministry of Finance actions regarding short-term bonds
The Ministry of Finance of the Russian Federation conducts frequent and regular issues (issues) of T-bills. The decoding of this abbreviation includes the word “state”, since it is the budget that receives the proceeds from the sale of these assets. Thanks to the policy of frequent issues, short-term bonds are transformed by such simple methods into long-term ones, since the state always has a certain amount of borrowing. For example, already in the ninety-fifth year from the implementation of T-bills, net budget revenues amounted to almost thirty trillion rubles. This made it possible to cover more than fifty percent of the federal state budget deficit. In the ninety-sixth year, revenue from short-term bond issue cycles amounted to more than fifty trillion rubles.
Who are the participants in the short-term bond market?
The abbreviation GKO, the decoding of which we considered above, has a wide range of market participants. The main actors are:
- The Ministry of Finance of the Russian Federation (Russian Federation), which is the issuer and determines the price of the initial placement of bonds at auctions, forms the weighted average price, and also affects the volume of issue.
- The Central Bank of the Russian Federation (Russian Federation), which is an authorized agent of the Ministry of Finance for the placement of T-bills. Also, the Central Bank of the Russian Federation holds and organizes auctions for the initial placement of bonds, participates in secondary auctions, operates with securities on open markets.
- A dealer, that is, a professional bidder who has concluded an agreement with the Central Bank of the Russian Federation, which services transactions with T-bills. The dealer can both conclude transactions at his own expense, or be a broker, performing transactions on behalf of his clients.
- An investor, that is, an individual and / or legal entity that is not a dealer and purchases government short-term bonds on the basis of an agreement concluded with a particular dealer.
- Depositories. T-bills, the decoding of which involves a non-cash form of issue, have a two-tier system, which consists of a sub-depository (in fact, it is the dealer) and a lead depository (an organization that has entered into an agreement with the Central Bank of the Russian Federation to conduct the necessary depositary actions for accounting for short-term bonds).