Treasury Bill & Treasury Bond Terms Explained
Part 12/15: A Beginner’s Guide to Investing in Treasury Bonds & Bills
If you’re investing in treasury bills (T-bills) or treasury bonds (T-bonds), you’ll come across financial terms that might seem confusing at first. Here’s a simple breakdown of the key terms and what they mean.
Face Value
This is the amount the government agrees to pay you when the bond or bill matures. For example, if you buy a T-bill with a face value of UGX 1 million, you’ll receive UGX 1M at maturity, even though you might have paid less to buy it.
Tenor
Tenor simply means the total duration of the treasury security.
Treasury bills have short tenors of 91 days, 182 days, or 364 days.
Treasury bonds have longer tenors, ranging from 2 years to 15 years.
Days to Maturity
This refers to the number of days left before the T-bill or bond matures. If you buy a 364-day T-bill, and 200 days have passed, the days to maturity will be 164 days.
Yield
Yield is the return on investment, usually expressed as a percentage.
For T-bills, yield is calculated based on the difference between the purchase price and the face value.
For T-bonds, yield factors in the interest (coupon) payments plus any price changes in the secondary market.
Coupon Rate
This is the interest rate paid on a bond. If a UGX 1M bond has a 15% coupon rate, you’ll receive UGX 150,000 annually (or UGX 75,000 every 6 months) until maturity.
Price or Cost
The price is how much you pay to buy a treasury security.
T-bills are sold at a discount (you pay less than face value and get full value at maturity).
T-bonds may be sold at face value, a premium, or a discount in the secondary market.
Issue Number or ISIN
Every treasury security has a unique identification code:
Issue Number – Assigned by the Bank of Uganda to track each bond or bill.
ISIN (International Securities Identification Number) – A global code used for identifying traded bonds.
Premium vs. Discount
Premium – When a bond trades above face value. If interest rates drop, old bonds with higher rates become more valuable.
Discount – When a bond trades below face value. This happens when new bonds offer higher interest rates than older ones.
This is part of the series A Beginner’s Guide to Investing in Treasury Bills and Bonds.
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