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UAE: Why investing in T-bonds would be more profitable than keeping money in a savings account

The Ministry of Finance will issue Treasury bonds to raise Dh1.5 billion in May

Published: Thu 21 Apr 2022, 3:03 PM

Updated: Thu 21 Apr 2022, 3:06 PM

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The UAE government will soon launch Treasury bonds (T-bonds) denominated in local currency for the first time to raise funds.

The Ministry of Finance (MoF) UAE will issue T-bonds on behalf of the government, in collaboration with the Central Bank of the UAE (CBUAE) as the issuing and paying agent.

Below is a guide for investors about the Treasury bonds:

What are Treasury bonds?

Treasury bonds are government debt securities that have different maturity periods and earn periodic interest until the maturity of the bonds.

What is the total value of T-bonds to be issued by the UAE government?

The Ministry of Finance will issue Treasury bonds to raise Dh1.5 billion.

When will T-bonds be issued by the UAE government?

Subject to market conditions, the first auction date is to be held in May 2022 followed by a series of periodical auctions.

What are tenors for the bonds?

The UAE securities will be issued initially in two, three and five-year tenures followed by a 10- year bond at a later date.

Why are UAE Treasury bonds to be issued in dirham?

The conventional T-Bonds will be denominated in UAE dirhams to develop the local bonds debt market. Issuing T-bonds in local currency will contribute to diversifying financing resources, boost the local financial and banking sector, as well as provide safe investment alternatives for local and foreign investors. This issuance will also help build the UAE dirham-denominated yield curve, thereby strengthening the local financial market and developing the investment environment. It will also provide pricing references for UAE markets (bond and equity). It will also provide opportunities for foreign investors to invest in local currency.

Can individual investors buy UAE Treasury bonds?

According to Vijay Valecha, chief investment officer at Century Financial, bond markets are primarily institutional, unlike equity markets. However, to democratise access to the bond markets, governments worldwide are introducing platforms that give access to retail investors. In the US, the government's TreasuryDirect website allows retail investors to purchase bonds directly. India's Reserve Bank of India also has a similar platform that allows retail investors to trade in government securities directly. UAE is expected to launch a similar platform for retail investors.

What will be the benefits of buying upcoming UAE Treasury bonds for retail investors?

Valecha said it is possible that the yield provided on dirham denominated Treasury bonds will be higher than the interest provided by banks on savings accounts. Retail investors may likely choose to stay invested in treasuries in the long term than hold cash or deposit money in a savings account. Mohammed Shaheen, CEO, of Seven Capitals, said those who invest in bonds get rewarded with a regular payment of interest along with a promise of returning the original capital at a specific time in the future which can be anything ranging from a month to 30 years. The bonds are usually described as investments of fixed income because you receive a set rate of interest for a pre-defined duration.

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Where will UAE bonds be auctioned and traded?

These securities will be auctioned and traded through Bloomberg’s Auction System and settled through a local platform, compliant with international standards, built and operated by Euroclear Bank.

Who are the primary dealers for T-bonds?

The primary dealers and onboarded six banks are Abu Dhabi Commercial Bank, Emirates NBD, First Abu Dhabi Bank, HSBC, Mashreq and Standard Chartered for primary market auction and to actively develop the secondary market.

-waheedabbas@khaleejtimes.com



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