Refunding Of Debt:

Sometimes the government replaces the short-term loans by long-term loans. Government borrows funds to meet current expenditure with shot-term loans which will be replaced later on by obtaining or raising fresh loans of long-term nature from the public. In other words, refunding is a method in which the maturing bonds are replaced by new bonds. Government bonds sometimes be reduced before heir maturing date if the government intends to change the terms of bonds like changing the rate of interest, maturity period etc. Though this method provides a temporary relief to the government, it gets tempted and finds it easy to postpone the repayment of the debt. Traditionally refunding operation involves highly complicated procedure but adequate techniques are developed in recent time simplified the matters.

Refunding operations rather face a management problem that it is necessary to estimate the yields precisely as demanded by the market.