03 May 2010

How to Invest in Sri Lanka Government Securities - Treasury Bills and Bonds

Sri Lanka Treasury Bills and Bonds attract foreign investors for a number of reasons. Prime among them are the stability of the booming economy of Sri Lanka and the higher interest rates offered on these government debt instruments compared to similar securities from other countries especially US and Europe. Sri Lanka Treasury Bills and Bonds are Tax Free as withholding tax is charged at source. Pl See: Current Rates on Treasury Bills and Bonds - Central Bank of Sri Lanka 

What is a Treasury Bill?
Treasury bill is a short term debt instrument of 3, 6 or 12 Months issued by the Government of Sri Lanka. Treasury Bills are discounted instruments - the investor pays the discounted value (investment value) and receives the face value on maturity. Government issues Treasury Bills through weekly auctions and interest is decided based on the bids received.

What is a Treasury Bond?
Treasury Bond is a medium to long term debt instrument of 2 to 20 Years issued by the Government of Sri Lanka. Treasury Bond carries a coupon (interest) which is paid on a half yearly basis, and the principal is repaid on maturity.

What is Sri Lanka Development Bond?
Sri Lanka Development Bonds (SLDBs) are a debt instrument denominated in US Dollars issued by the Government of Sri Lanka. Interest is paid to the holder every six months and the principal repayment is made at the end of the maturity period. Calculation of interest payments will be based on the six month London Inter Bank Offered Rate (LIBOR) for USD per annum plus a margin determined through competitive bidding at the auction.

Who Issues Treasury Bills/Bonds?
As an Agent of the Government of Sri Lanka, the Public Debt Department of the Central Bank of Sri Lanka (CBSL) issues the Treasury bills and Treasury Bonds, and in the case of Treasury Bills repays maturity proceeds on maturity, and for Trasury Bonds pays interest on due dates and repays the principal on maturity.

Types of Government Securities
• Rupee Denominated Securitie
• Treasury Bills : Available to foreign investors, Sri Lankan diaspora living/working abroad and Sri Lankan citizens.
• Treasury Bonds : Available to foreign investors, Sri Lankan diaspora living/working abroad and Sri Lankan citizens.
• Inflation-linked Bonds : Available only to Sri Lankan citizens.
• Foreign Currency Denominated Securities
• Sri Lanka Development Bonds : Available to foreign investors, Sri Lankan diaspora living/working abroad and Specified Companies.

How to Invest in Government Securities?
Investors can purchase Treasury Bills/Bonds either from auctions in the primary market through a designated Primary Dealer (PDs) on specified dates, or from the secondary market through Primary Dealers, Commercial Banks or the Joint Lead Managers in the case of Sri Lankan Diaspora business on any week day.

Can I Invest in Treasury Bills/Bonds?
Yes, if you are one of the following,
a) Foreign institutional investors such as foreign country funds, mutual funds and regional funds.
b) Corporate bodies incorporated outside Sri Lanka.
c) Citizens of foreign states.

What are the Main Features of Treasury Bills?
• Risk free, gilt edged debt instrument
• Short term debt instrument (3 to 12 months)
• Maturity proceeds (Face value) will be paid on maturity
• Yield rates are determined by the market
• Tradable instrument in the secondary market
• Issued in scripless form

What are the Main Features of Treasury Bonds?
• Risk free, gilt edged debt instrument
• Maturities are available with 2-20 years
• It carries half yearly coupon payments and the principal is repaid on maturity
• Yield rates are determined by the market
• Tradable instrument in the secondary market
• Issued in scripless form

What Benefits Can I Derive by Investing in Treasury Bills/Bonds?
• It is an absolutely risk free investment, since it is issued by the sovereign government. Hence, they are called gilt-edged securities meaning that they are covered by gold.
• You can get the highest rate of interest since the yield rates are determined in the market.
• Since these bills/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.
• 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 a withholding tax of 10 percent is charged at source is the final tax.
• No stamp duty is payable on these bills/bonds.
• You can get the best service from the CBSL which maintains your investment in its state of the art, Scripless Security Settlement System and the fully automated Central Depository System (CDS).

What is the Availability of Treasury Bills/Bonds to a Foreign Investor?
• Foreign investors can purchase up to 10% of the total outstanding Treasury Bills or Bonds at any given time.

According to Central Bank data foreign investors held Rs 212 billion of bonds up from Rs 199 billion on January 04 2012. Treasury bills holdings rose to Rs 84.5 billion from Rs 70.1 billion in the same period there amid periodic changes.

How Can I Apply for Treasury Bills?
• You can purchase Treasury bills at any time through Primary Dealers (PDs) or Licensed Commercial Banks (LCBs) registered with the CBSL. PDs are the institutions appointed by the CBSL for trading in Government securities. Contact details of these institutions are given below.
• You can purchase Treasury bills by sending bids to the primary auctions through PDs or through direct placements.
• In order to make arrangement for fund transfers, you can advise your own bank to open a Rupee account named “Treasury bill Investment External Rupee Account - 2 (TIERA - 2)” in an LCB in Sri Lanka. (Note: Securities Investment Accounts (SIA) replace TIERA-2).
• After completing the transaction, your agent (LCB/PD) will open a security account for you in the CDS maintained by the CBSL. This account is debited /credited simultaneously based on your tradings in the market.

How Can I Apply for Treasury Bonds?
• You can purchase Treasury bonds at any time through Primary Dealers (PDs) or Licensed Commercial Banks (LCBs) registered with the CBSL. PDs are the institutions appointed by the CBSL for trading in Government securities. Contact details of these institutions are given below.
• You can purchase Treasury bonds from the secondary market or you can even send bids to the primary auctions through PDs.
• In order to make arrangement for fund transfers, you can advise your own bank to open a Rupee account named “Treasury bond Investment External Rupee Account (TIERA)” in an LCB in Sri Lanka. (Note: Securities Investment Accounts (SIA) replace TIERA).
• After completing the transaction, your agent (LCB/PD) will open a security account for you in the CDS maintained by the CBSL. This account is debited /credited simultaneously based on your tradings in the market.

What is Primary Market?
• Information on auctions for Treasury Bills and Treasury Bonds are normally announced in the leading newspapers at least two days prior to the auction date.
• Treasury Bond series available for foreigners are announced by the Public Debt Department via e-mail to all participants in the Central Depositary System.
• In the case of Treasury Bills, newspaper advertisements are published on every Monday and the auctions are held on Wednesdays. Bids are accepted through the fully automated online bidding system.
• Treasury Bills are issued weekly, while 3-4 Treasury Bond auctions are held every month based on the Government's cash requirement.
• All investors who are willing to participate in primary auctions should submit their bids through Primary Dealers before 11 a.m. on the auction date which is the Primary Dealer's deadline for submission of bids to auction. The successful bidders are informed within two hours of the deadline for the submission of bids. Press releases are published in leading newspapers on the following day.
• Settlement of successful bids in the primary market is on two business days after the auction date (T+2). Sri Lanka Government debt securities are scripless and therefore securities transfers take place on an electronic basis. Settlement is via the electronic payment system and the Real Time Gross Settlement System on a delivery vs. payment basis.
• Investors are required to maintain accounts with Commercial Banks or Primary Dealers for cash settlement for their transactions as well as for the crediting of coupon payments. Ownership of securities is recorded in the Central Depository System maintained by the Central Bank of Sri Lanka.

What is Secondary Market?
• An investor can either hold a tradable security until maturity or sell in the secondary market prior to maturity at the current market price.
• Investors can also buy tradable securities already issued to the market by the Central Bank of Sri Lanka.
• Primary Dealers/Commercial Banks quote buying and selling prices of Treasury Bills, Treasury Bonds daily for different maturities. Investors can shop around and bargain to obtain attractive market rates for these securities.
• Sri Lankan Government debt securities are scripless and the securities transfer is done on an electronic basis. In the Scripless Securities Settlement System (SSSS) transfer instructions are carried out on a trade-by-trade basis, with the transfer of securities and the transfer of funds for payment taking place simultaneously.

Who are Primary Dealers?
Primary Dealers are institutions appointed by the Central Bank of Sri Lanka for marketing government securities in the secondary market. Primary Dealers are also responsible for supporting the primary auction and are the major participants in the competitive bidding process. Primary Dealers are required to provide liquidity in the secondary market by quoting bid and offer yields for government securities.

How Can I Collect Maturity Proceeds?
• Interest (for Treasury Bonds) and Maturity proceeds (for both Treasury Bills and Bonds) relating to Treasury Bills/Bonds are credited on due dates directly to your account through your agent. The participants of the CDS are responsible to pay dues to you on due dates.

How do I Get More Information on Treasury Bills/Bonds?
• Details on available Treasury Bills and prevailing market rates can be obtained from LCBs, PDs and CBSL Website (www.cbsl.gov.lk)
• Details on current auctions can be obtained from PDs and LCBs.
• Any detail on this scheme can be obtained from the Public Debt Department of the CBSL.
Telephone: 94 11 2 477277 /212 /274//276 /278/316
Fax: 94 11 2477718/719/759
e-mail: pddrbw@cbsl.lk

List of Participating Agents - Licensed Commercial Banks (LCBs) and Primary Dealers (PDs)
List of Licensed Commercial Banks (LCBs)
List of Primary Dealers (PDs)

Market Information - Primary Market
Last Treasury Bill Auction (Press Release)
Last Treasury Bond Auction (Press Release)
Treasury Bill Auction Historical Data (1996-2009)
Treasury Bond Auction Historical Data (1997-2009)

Market Information - Secondary Market
Two Way Quotes and Market Rates for Treasury Bills and Bonds. Please see latest Weekly Economic Indicators.

Additional Information on Treasury Bills and Treasury Bonds
Available Treasury Bond Series
Sri Lanka Development Bonds - Latest Issue
Outstanding Government Debt Stock - Monthly Economic Indicators
‘LankaSecure’ - Scripless Securities Settlement System (SSSS) and CDS
Exchange Rates

Treasury Bills for Foreign Investors
Treasury Bonds for Foreign Investors
Treasury Bills and Bonds for Sri Lankan Diaspora

Related Info :
Securities Investment Accounts (SIA) Replace SIERA & TIERA Accounts - For Investment in Sri Lankan Equity, Debt and Unit Trusts
Sri Lanka Offers Special Visas to Investors, Professionals & Senior Citizens

7 comments:

Anonymous said...

A very useful guide. Thanks for the trouble taken.

Client Associates said...

A very useful information that Sri Lanka Treasury Bills and Bonds

http://www.clientassociates.com/

Anonymous said...

Useful guide. Keep up the good work.

Anonymous said...

How about updates on daily trades. Well, I'm asking for lot, but may be worth it. Cheers

jahno said...

Excellent blog cuz it is now that i know what treasury bills and bonds are.

A trainee money broker

Thushara Herath said...

very useful guide.

Gurjender singh said...


Thanks for your great information, the contents are quiet interesting.I will be waiting for your next post.
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