MAKE MONEY WITH : TREASURY BONDS
Risk free, Liquid and competitive return .
I. What is a Treasury bond ?
Ø A Treasury bond is a Government debt security.
Ø Treasury bonds are issued by NBR for fiscal or monetary policy purposes.
Ø Treasury bonds can be issued with a maturity of 2,
3, 5, 7, 10 years or more.
Ø Buyer or Treasury bond holder receives interest payments (coupons) periodically: quarterly, semi-annually) and the face value at maturity.
II. Who can buy a Treasury bond ?
Ø Individual and company, resident and non resident with an account in licensed commercial banks, intermediaries or at the National Bank of Rwanda.
III. Minimum bid amount :
Ø Competitive bids : Rwf 50 million.
Ø Non- Competitive bids : Rwf 100.000.
IV. Treasury bond advantages :
Ø They are transferable and negotiable;
Ø They can be pledged as collateral
Ø The rate of return is competitive.
V. When can I buy Treasury bond ?
Ø A press release is issued by NBR seven days before auction, announcing the auction date, size of issue, maturity, coupon rate and payment dates and the time of delivery of bid.
Ø A press release is also published on the NBR website, in the newspapers IMVAHO and NEWTIMES and on RTV.
VI. How to subscribe in Treasury bonds ?
Ø Through his bank or intermediary by filling the application form.
Ø This form duly signed by the bidder and his (her) bank or the intermediary is sent to the NBR for the bid allocation. After that, bond results are communicated to successful bidders. The global results are also published on the NBR website.
Ø
VII. How liquid are Treasury bonds ?
Ø Each bidder receives, an acknowledgement of his investment a “Treasury bond record of Ownership” corresponding to his/her bid.
Ø If the holder needs the liquidity before maturity, he turns to one of the stockbrokers (listed at the end of this leaflet) and orders the sale of his security.
Ø The sell order is executed either by the stockbroker or traded on the OTC (Over The Count) market on behalf of the investor via the stockbroker chosen.
VIII. Purchase of a Treasury bond already issued .
ØOne week after the auction, Treasury bonds issued are listed on CMAC (Capital Market Advisory Council).
ØEach investor with surplus authorizes his stockbroker to buy, on his behalf, a treasury bond already listed. The purchase order is, either executed the chosen stockbroker, or negotiated on the OTC market (CMAC) on behalf of the investor through his stockbroker.
1. Suppose Mr John bids for Treasury bonds of Rwf 50.000.000 at a price of Rwf 98 for Rwf 100.
2. Treasury bond Conditions :
-Auction date : 17 January 2008,
-Coupon interest rate : 8%,
-Tenor : 2-year,
-Maturity date : 14 January 2010,
-Coupon payment dates :
Semi-annually : 18/07/2008 , 16/01/2009,
17/07/2009, 15/01/2010.
- Redemption date : 15 January 2010.
-Tax : 15%
3. On T+1 (18/01/2008), Mr John account is debited with a bid price of Rwf 49.000.000 calculated as follows :
Rwf 50.000.000 x 98% = Rwf 49.000.000.
4. On the payment dates (7/18/2008, 1/16/2009, 7/17/2009 and 1/15/2010), The John’s account will be credited by :
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Dates
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Designation
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Amount
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7/18/2008
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-Coupon - tax
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1.700.000
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1/16/2009
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-Coupon - tax
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1.700.000
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7/17/2009
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-Coupon - tax
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1.700.000
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1/15/2010
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-Coupon - tax
-Nominal amount - tax
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1.700.000 49.850.000
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Total
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56.650.000
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Those amounts are calculated as follows :
*Coupon – tax :
=(50.000.000 x 8%) - [(50.000.000 x 8%) x 15%]
2 2
= Rwf 2,000,000 - Rwf 300,000
= Rwf 1,700,000
*Nominal amount – tax :
= Rwf 50.000.000 - [(50.000.000-49.000.000) x 15%]
= Rwf 50,000,000 - Rwf 150,000
= Rwf 49,850,000
5. Globally, Mr John will get :
Rwf 56,650,000 - Rwf 49,000,000 = Rwf 7,650,000.
6. Treasury bond negotiation
Suppose that Mr John needs his money on 30/09/2009 and would like to sell his Bond at Rwf 97 for 100 Rwf.
7. He just have to turn to stockbroker and sign a sell order to authorize the stockbroker to sell his bond.
8. Suppose that John’s bond is sold to Mrs Mary. After the sale, John’s account will be credited with :
Rwf 50.000.000 x 97/100 = Rwf 48.500.000 and Mary’s account debited of the same amount(Rwf 48.500.000).
9.At maturity, Mary account will be credited with
Rwf 51.475.000, equivalent to :
*last coupon minus tax = Rwf 1.700.00 and
*nominal amount minus tax :
= 50.000.000 – [(50.000.000 – 48.500.000) x 15%]
= Rwf 49.775.000 .
10. Definitively:
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Mr John will Get
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Mrs Mary will get :
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1.700.000 Rwf
+ 1.700.000 Rwf
+ 1.700.000 Rwf
+ 48.500.000 Rwf
- 49.000.000 Rwf
4.600.000 Rwf
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1.700.000 Rwf
+49.775.000 Rwf
-48.500.000 Rwf
2.975.000 Rwf
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Institution
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Phone number
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NBR
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+250 59142225
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CMAC
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+250 500335
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Stockbrokers:
African Alliance Rwanda ………..
Continental Discount House …….
Dallas Securities Rwanda………..
Dyer&Blair Securities Rwanda…..
Faida Securities Rwanda…………
Kingdom Securities Rwanda……..
MBEA Brokerage Securities …….
MBEA Financial Securities………
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+250 03276592
+250 570735
+250 08300410
+250 570390
+250 08304050
+250 08309090
+250 574565
+250 574565
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