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Fungible Treasury Bonds (T-Bonds)

Fungible Treasury Bonds (T-Bonds) are government medium to long-term debt securities issued by way of invitation to tender.

Characteristics (T-Bonds)

    • Nominal unit: 10 000 FCFA (unit amount of each bond).
    • The nominal value (NV), multiple of the nominal unit, corresponds to the amount announced by the Treasury of the issuing State. The Treasury has the ability to retain 10% of the amount announced depending on the offers.
    • Maturities: 3 years, 5 years, 7 years, 10 years, 15 years, or more. The due date is expressed in number of years (N).
    • Coupon rate (i): corresponds to the nominal coupon rate which is fixed.
    • Basis for interest calculation: by agreement, the basis of calculation for FT-Bonds is Exact/Exact.
    • Interests: interest is payable on a defined periodicity or frequency of interest payments.  Usually, the frequency of interest payment is annual. Interest paid in the period i will be noted Interest _i
    • Price: upon issue, the auction price corresponds to the weighted average price (WAP). This WAP is the weighted average price, which is the average of the prices offered by the winning bids.


Net amount (NA)

  • at the first issue, the net amount received by the issuer corresponds to the nominal value multiplied by the average weighted price.
  • Matching of T-Bonds, a second tranche of the same T-Bonds (same characteristics) is offered in auction. The net amount hit this time by the issuer corresponds to the nominal value multiplied by the average weighted price plus the accrued coupon.
  • The accrued coupon is in proportion to the total value of interest over the period between the last interest payment and matching date. On the date of coupon detachment, the issuer pays a full coupon, to all the holders irrespective of the date they acquired the securities.
  • Refund: the Treasury bonds are to be reimbursed in several times by annual amortization of the capital (constant amortization) or at once on the final maturity date (Bullet redemption). The refund in the period i will be noted Amort_i
  • Performance or Weighted Average Rate (WAR): corresponds to the rate of actuarial return obtained by keeping the bond until maturity.

Who can benefit?

  • Any natural or legal person residing in the Union
  • Foreign non-residents through Primary Dealers or banks resident in the Union.

Issuance technique

  • Bonds are auctioned on multiple prices (requested rates).
  • Issues by tender are organized by the WAMU Securities Agency. A notice of call for tenders is launched for each issue of Fungible Treasury Bond. This notice specifies the issuance characteristics as well as the bidding practicalities.

Subscription terms

The bid amount is multiple of 10,000 FCFA for a minimum amount of 1 000 000 FCFA (minimum purchase of 100 securities).

Taxation

Tax applied to Fungible Treasury Bond is that in force in the issuing State. As a general rule, T-Bonds are tax-free for buyers resident in the issuing State.

Benefits:

  • T-Bonds offer medium or long term investment to meet your investment requirements of your savings or your long-term resources. These securities combine safety (sovereign issuer) and quality (the State).
  • Fungible Treasury Bonds offer the investor an optimal risk/return ratio.
  • The investment in Fungible Treasury Bonds contributes to the financing of State budget.

For example, the State could use these resources to finance public infrastructure

(Airport, highway, hospital, schools, etc.).

Availability:

Fungible Treasury Bonds are available at any time on the primary market and the secondary market through Primary Dealers, financial institutions and brokerage firms within WAMU.

Liquidity

Bonds are traded over-the-counter on the secondary market and eligible (for those which qualify) as collateral for Central Bank refinancing.

Illustration

Let’s take the example of a 3 year T-bond. The first issue concerns the award of the first tranche of a nominal amount of 20 000 million CFA. The second issue comes 6 months later for a second tranche in the amount of 10 000 million. Securities issued during the second tranche have 2.5 years of residual maturity and have exactly the same characteristics as the first issues. Securities issued in both instances (first and second tranches) are fungible.

 

First issue: 20 000 million (20 billion) of 3 year FT-Bonds with a 5.5% coupon rate

Investors price requested (in%) Amount proposed

(n million CFA)

Accumulation
Investor_A 100,5000 3 000 3 000
Investor_B 100,2500 1 000 4 000
Investor_C 100,0000 1 050 5 050
Investor_D 99,7500 5 000 10 050
Investor_B 99,0000 1 750 11 800
Investor_E 98,7500 2 500 14 300
Investor_F 98,5000 300 14 600
Investor_C 98,2500 3 000 17 600
Investor_H 98,0000 400 18 000
Investor_G 97,5000 2 000 20 000
Investor_I 97,0000 400 20 400

 

Amount put out to tender by the Treasury: 20,000 CFA


Results of the auction on the first show

Amount in million (CFA) 20 000
Marginal price 97,5000%
Weighted average price 99,2063%
Net received by the Treasury (in million CFA) 19 841,25
Stock of the 3 year T-Bonds (in millions of CFA) 20 000


Second issue: second tranche of 10 000 million (10 billion) T-bonds of 3 years, 6 months (182 days) after the first issue (2.5 years residual maturity).

Additional amount sought by the Treasury: 10 000 million FCFA

 

Investor prices (in %) Amount proposed

(in million CFA)

Accumulation
Investor-X 100,0000 3 000 3 000
Investor-Z 99,5000 5 000 8 000
Investor_C 99,2500 1 000 9 000
Investor_A 99,0000 1 000 10000
Investor_B 98,7000 1 750 11 750


Matching auction results

Amount (in millions of CFA) 10 000
Marginal price 99,0000%
Weighted average price 99,5750%
Accrued coupon (half of the full annual coupon) 2,7500%
Net received by the Treasury (in million CFA) 10 232,50
Stock of the 3 year T-Bonds (in millions of CFA) 30 000

 

The amount of the loan raised in matching adds to the amount borrowed during the first issue. At maturity, the State will have to repay 30 000 million CFA to the holders of the 3 year T-Bonds.

 

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