UAE flag raised in UAE
Two auctions will take place in the first quarter - January 30 and March 13. Image Credit: Gulf News Archives

The UAE government will auction treasury bonds worth Dh2.2 billion in the first quarter of 2023.

The bonds will be issued via two auctions of Dh1.1 billion each, the Ministry of Finance said in a schedule published on its website.

The first auction will take place on January 30, which will see bonds worth Dh550 million issued in a two-year tranche, and an identical amount issued in a five-year tranche.

The second auction, on March 13, will see Dh550 million worth of bonds each issued in two-year and three-year tranches.

The UAE’s treasury bond auctions have seen roaring success in 2022. The government auctioned Dh9 billion worth of T-bonds in 2022 in six auctions of Dh1.5 billion each.

The first auction of the T-bonds, held in May this year, received bids worth Dh9.4 billion and was oversubscribed 6.3 times. The second auction, in June, received bids worth Dh9.7 billion and was oversubscribed by 6.5 times.

The third one, in August, received bids worth Dh7.6 billion, an oversubscription by 5.1x, while the fourth auction in September received bids worth Dh8.60 billion and was oversubscribed 5.7 times.

The fifth auction in October received bids worth Dh7.57 billion, an oversubscription by five times, while the sixth auction in December received bids worth Dh6.72 billion, oversubscribed by 4.5 times.

Why issue treasury bonds?

Treasury bonds are domestic bonds issued by the UAE federal government, denominated in the Emirati dirham. The primary objective of local currency bond issuance is to develop the UAE yield curve which plays an important role in providing a benchmark and reference index for various financing operations of the federal government, including long term mortgage interest rates and capital projects. The yield curve shows the interest rates of bonds on different maturities and indicates the expected return on the invested capital over different investment terms.

What is a yield curve?

A yield curve is a graph that plots yields (or interest rates) of bonds with equal credit quality but different maturity dates. The yield curve gives an idea of future interest rate changes and economic activity.

What’s the process?

The process can be explained in three steps:

1. Issuance of T-Bonds: The government issues T-Bonds. The investor subscribes to the issuance and purchases the bond’s issue price.

2. Interest payment to investors: The government makes fixed, periodic interest payments to the investor.

3. Repayment of face value: When the bond reaches maturity, the government repays the face value, including outstanding interests.

The primary dealers

The Federal Debt Management Office, a directorate under the Ministry of Finance, has selected six banks as primary dealers for the T-Bond issuance programme – ADCB, Emirates NBD, FAB, HSBC, Mashreq and Standard Chartered.