Investing 101 – Treasury Bills & Treasury Bonds

We are going to deal with government securities known as treasury bills and treasury bonds in this short read, government securities are considered as a risk-free investment which brings reasonable returns to your investment.

Investing 101 is a series of short reads explaining the basics of investing and the investment options available to us, you can read the first article using the below link

Investing 101 – Understanding Risk and Return

What is a Treasury Bill?

A Treasury Bill is a short-term debt instrument issued by the Government of Sri Lanka under the Local Treasury Bill Ordinance with maturities of 90 days, 182 days, 364 days.

What is a Treasury Bond?

A Treasury Bond is a medium to a long-term debt instrument issued by the Government of Sri Lanka under the Registered Stock and Securities Ordinance with maturities of 2-10 years.

Who has authority to issue Treasury Bills/Treasury Bonds?

In terms of annual borrowing targets specified in the Appropriation Act which is approved by the Parliament annually, the Government of Sri Lanka is authorized to issue Treasury Bills/Treasury Bonds. As an Agent of the Government of Sri Lanka, the Public Debt Department of the Central Bank of Sri Lanka (CBSL) issues Treasury Bills/Treasury Bonds and pays interest and maturity proceeds on due dates.

treasury bills srilanka

 

What are the main features of Treasury bills/Treasury bonds?

  • Risk-free, guild edged debt instrument.
  • Short term (Treasury Bills) and medium to long-term (Treasury Bonds) debt instrument.
  • Maturity proceeds (Face Value) will be paid on maturity.
  • Half yearly coupon payments for Treasury bonds.
  • Treasury bills are issued at a discount and the interest payment is at the maturity.
  • Yield rates are determined by the market.
  • A tradable instrument in the secondary market.
  • Issued in scripless form.

What are the main benefits of investing in Treasury Bill & Treasury Bond?

  • These are default risk-free investments since it is issued by a sovereign government. Hence, they are called gilt-edged securities.
  • You can get a higher rate of interest since the yield rates are determined in the market.
  • Since these Treasury Bills and Treasury Bonds are tradable in the secondary market, you can obtain instant liquidity by selling them in the market.
  • All receipts of interest/maturity proceeds and capital gains are fully repatriable.
  • During the last 3 years, the Sri Lanka rupee has depreciated against the US dollar by an annual average rate of 3.4 percent only.
  • You could also have a joint investment with some other person or persons. Hence, it is a very good way to share your investments with loved persons.
  • You are not subject to further taxation, since the withholding tax of 10 percent charged at the source, is the final tax. Further, no stamp duty is payable on these securities.
  • You can benefit from the service of the state of the art, fully automated Central Depository System (CDS) of Lanka Secure, which will issue periodic statement to the investors, confirming their holdings and transactions
  • You will be able to check your investment online through the internet, via a secure and password protected website. (https://www.cbsl.lk/lankasec/)
Related Read  Investing 101 - Investing in savings account

Who is eligible to invest in Treasury Bills/Treasury Bonds?

  • Sri Lankans who have made their permanent residence overseas (Non-residents)
  • Citizens of Sri Lanka with dual citizenship in Sri Lanka.
  • Sri Lankan Professionals living in Sri Lanka or abroad who earn income in foreign currency.
  • Citizens of Sri Lanka who have taken up overseas employment or set up business.

Government securities are considered as a risk-free investment which brings reasonable returns to your investment

What types of transactions are permitted to eligible investors?

  • Eligible investors are permitted to purchase Treasury Bills/ Treasury Bonds issued by the government of Sri Lanka from direct placement/primary auctions and through Lead Managers.
  • Eligible investors are permitted to enter into Repo/Reverse Repo transactions using Treasury Bills/Treasury Bonds purchased under this scheme as collateral.
  • Eligible investors are permitted to sell Treasury Bills/Treasury Bonds in the secondary market at any time

How can you apply for Treasury Bills/Treasury Bonds?

if a local investor wishes to buy a Treasury Bill or a Treasury Bond, the investor can purchase same in the secondary market through a Primary Dealer or a Licensed Commercial Bank. In the case of a foreign investor or a Sri Lankan living abroad, such investment can be made through a Lead Manager appointed for the purpose by the CBSL. 

Related Read  Investing 101 - Understanding Risk and Return

How can you collect maturity interest proceeds?

Interest/maturity proceeds relating to government securities are credited on due dates directly to your account and the dealer/bank is responsible to collect and pay dues to the investor on the due dates.

For More Information – visit central bank of srilanka website


Disclaimer: The information contained in this article is for informational purposes only, should not be considered as an investment advice. Always make sure to do your own research, talk to your financial advisor and/or seek independent advice where appropriate & necessary.

Kathirnathan Ragulan

Kathirnathan Ragulan is the founder of advisor.lk and a serial entrepreneur, Business Consultant, Wealth Tech entrepreneur, Personal Finance & Debt Management Expert with over a decade of banking and investment industry experience.

One thought on “Investing 101 – Treasury Bills & Treasury Bonds

Leave a Reply

Your email address will not be published. Required fields are marked *