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Finance Ministry issues treasury bonds worth EGP 2.25 bln

Monday 09/October/2017 - 10:27 AM
Sada El Balad
Sada ElBalad-Yara Sameh

Egypt's Ministry of Finance plans to issue on Monday two treasury bonds worth EGP 2.25 billion.

The first treasury bond is worth 1.5 billion pounds with 5 years to maturity، while the second is worth one billion pounds with 10 years to maturity، according to Egypt’s Central Bank’s Treasury Auctions T-bonds.

Meanwhile، the ministry issued Sunday two treasury bills for the maturity of 91 and 273 days worth EGP 13.25 billion، with an average interest rate approaching 18% for both periods.

The ministry has taken the step to boost the country's economy and narrow the funding gap amid severe shortage in funding projects in Egypt.

Noteworthy، A Treasury bond (T-Bond) is a marketable، fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest payments semi-annually، and the income received is only taxed at the federal level. Treasury bonds are known in the market as primarily risk-free; they are issued by the U.S. government with very little risk of default، according to investopedia.

Treasury bonds are one of four types of debt issued by the U.S. Department of the Treasury to finance the government’s spending activities. The four types of debt are Treasury bills، Treasury notes، Treasury bonds and Treasury Inflation-Protected Securities (TIPS). The securities vary by maturity and coupon payments. All of them are considered benchmarks to their comparable fixed-income categories since they are virtually risk-free، backed by the U.S. government، which can raise taxes and increase revenue to ensure full payments. These investments are also considered benchmarks in their respective fixed-income categories as they offer a base risk-free rate of investment with the categories' lowest return.

-Maturity Ranges-
Treasury bonds are issued with maturities that can range from 10 to 30 years. They are issued with a minimum denomination of $1،000، and coupon payments on the bonds are paid semi-annually.

The bonds are initially sold through auction in which the maximum purchase amount is $5 million if the bid is noncompetitive or 35% of the offering if the bid is competitive. A competitive bid states the rate the bidder is willing to accept; it is accepted depending on how it compares to the set rate of the bond. A noncompetitive bid ensures the bidder gets the bond but he has to accept the set rate. After the auction، the bonds can be sold in the secondary market.

There is an active secondary market for Treasury bonds، making the investments highly liquid. The secondary market also makes the price of Treasury bonds fluctuate considerably on the trading market. As such، current auction and yield rates of Treasury bonds dictate their pricing levels on the secondary market.

Similar to other types of bonds، Treasury bonds on the secondary market see prices go down when auction rates increase، as the value of the bond’s future cash flows is discounted at the higher rate. Inversely، when prices increase، auction rate yields decrease.

In the fixed-income market، Treasury bond yields help to form the yield curve، which includes the full range of investments offered by the U.S. government. The yield curve diagrams yields by maturity and is most often upward sloping، with lower maturities offering lower rates than longer-dated maturities.

However، when longer maturities are in high demand، the yield curve can be inverted، which shows longer maturities with rates lower than shorter-term maturities.

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