Treasury bills, bonds useful investment

GENERALLY, investment for most Zambians means buying or building a house or two, and renting out the property – this has been a trend for some time now.
This is because building a house is much talked about and is deemed as a symbol for anyone who has invested wisely, while a person with a stable income and has not built or acquired a house is regarded a failure.
Although owning a house is a good initiative, it is important to note that there are various investment avenues one can undertake, which also offer profitable returns. These include stocks, term deposits, unit trusts, insurance, bonds and treasury bills, and like property, their price can either rise or fall.
Treasury bills and bonds are debt instruments issued by Government through the central bank to borrow money from the public.
Treasury bills have tenures ranging from three months to one year while bonds have maturity tenures of between two and 15 years.
As at last Friday, yields for treasury bills were about 14.50 percent for 91 days, 14 percent for 182 days, almost 21 percent for 273 days, and 23.16 percent for one year while government bonds have yields of 19.50 percent for bonds maturing in two years, 20 percent for three-year maturity, five-year bonds attracting 20.40 percent.
With such returns, debt instruments are indeed an alternative investment and are also an ideal example of risk-free security.
Supporting investment of such nature is Michael Lubinda, who has been participating in treasury bills for more than five years.
Mr Lubinda says attractive long-term returns make it the reason why people should venture into government securities.
“I have been participating in treasury bills because they are convenient and less stressful.
“I have also participated in bonds a couple of times and I built the house I live in using the principle and interest from the bonds,” he says.
Despite the attractive nature of government securities, few Zambians venture into them due to limited information.
Others have not invested in them because they are long-term in nature, as noted by Gerald Sikazwe.
For Mr Sikazwe, the maturity period is unattractive for someone who needs money immediately.
“I have invested in flats [property] and I get my money monthly to meet my needs. Why should I invest in bonds and get the principle and interest after five years, for instance? What will I eat between now and the date of maturity?” he wonders.
Sadly, many citizens share Mr Sikazwe’s thoughts while others are not aware that they can invest in debt instruments and this continues to contribute to the low participation by local investors.
This leaves foreign investors to dominate the market, and whenever there is low appetite by investors, like the case currently, Government is unable to undertake certain developmental projects because issuing bonds and treasury bills is one way of raising capital.
“Demand for Government securities generally declined in the third quarter, weighed down by reduced participation by offshore investors.
“Subscription rates for bonds fell significantly to 32 percent from 124 percent recorded in the previous quarter,” Bank of Zambia (BoZ) Governor Denny Kalyalya said at the quarterly briefing a fortnight ago.
Realising the low participation, BoZ and Ministry of Finance early this year announced the introduction of a secondary market for the securities.
Dr Kalyalya said the secondary market for debt instruments will, therefore, help investors sell off securities before maturity to provide liquidity.
Currently, the central bank operates a primary market for treasury bills and bonds, and investors have to wait for the securities to mature for them to get liquidity.
The first part of the exercise will be the introduction of the primary dealership to pave way for establishment of the secondary market.
It is anticipated that by creating a primary dealership, an active secondary market will be developed and will woo more investors as former Securities and Exchange Commission (SEC) chief executive officer Wala Chabala points out.
Dr Chabala feels that the current system restricts the size of a single investment amount that one needs to have to participate in the auction of government securities.
In addition, most financial institutions participating in the auctions hold on to the securities until maturity.
“With only a few players being designated as primary dealers, all the other players will have to access government securities through the secondary market. Any investor will be amenable to participate in this secondary market, since it is unlikely that there could be restrictions,” he says.
The move is a breath of ‘fresh air’ as the country aspires to transform its economy.
To this, Economics Association of Zambia (EAZ) president Lubinda Habazoka believes that bonds and treasury bills are a vehicle through which one can invest for the future and contribute to increasing liquidity, which is an important factor.
“As such, more people should invest in them to ensure liquidity at both macro and household levels,” Dr Habazoka notes.
However, awareness will certainly play a role in promoting Government securities as an alternative investment instrument, and will help in removing the notion that owning a house is the only best form of investment.
By encouraging more participation in securities and other investment platforms, the country will achieve the goals of having a population that saves, invests and insures for the future in line with this year’s World’s Savings Day commemorated last month.

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