What is T-Bills and T-Bonds?
May 05, 2022
Treasury Bills and Treasury Bonds are common financing instruments which the Government uses to raise funds for its everyday expenditure. T-Bills are issued on a short-term basis (its maturity date is not more than 1 year), while T-Bonds are long term investment instruments (with tenors more than 1 year).
T-bills are issued on a weekly basis whilst T-Bonds are issued less frequently. To note, the Government has recently increased the frequency of T-Bonds to quarterly issuances. This forms part of its strategy to lengthen the maturity of the debt profile and reduce the rollover risks associated with T-Bills issuance.
The procedure to issue T-Bills and T-Bonds are similar. Discussions are held between the various stakeholders to which an agreed sum in T-Bills and T-Bonds is decided based on Government’s cash flow position.
Once all the administrative procedures have been covered, T-Bills and T-Bonds are issued through an auction sale mechanism. T-Bills auction sales are carried out every Friday at 8.30am, while T-Bonds are auctioned at specified dates. Investors have an auction window to place their bids (usually one week) after which the auction takes place.
The Central Bank of Seychelles manages the issuance of T-Bills and T-Bonds on behalf of the Government.
Investing in Treasury Bills and Treasury Bonds
From an investor perspective, investing in a long-term financial instrument, means a higher return on his/her investment as the interest payable on T-Bonds tends to be more attractive than T-Bills, which is short term.
From a Government’s perspective, the long-term investment means a decrease in the ‘roll-over risk,’ (renewal of the loan, as cannot afford to pay, upon maturity) and it allows for a better repayment plan, as and when the bonds mature.
To enable investors to better plan their investment and improve transparency, in March, the Government, through the Ministry of Finance, National Planning and Trade published its ‘Indicative Issuance Calendar’ for the 2nd quarter of the year, (1st April – 30th June, 2022). Investors can access the calendar to know when the Government will be issuing T-Bills and new T-Bonds.
The ‘Indicative Issuance Calendar’, is meant to ‘enable institutional and retail investors to plan their investments efficiently and provide transparency and stability to the Government securities market.’
Catch up with Mr. Dick Labonte, head of Debt Management at the Ministry, who spoke with SBC's Economic Watch about T-Bills and T-Bonds.