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Understanding Government Bonds

Bahamians are constantly reminded of the billions of dollars of debt that the government owes. The government owes money to banks, insurance companies, pension funds, credit unions, and unknown to many, the average Bahamian investor (to name a few). One may ask “how does the Bahamian government owe money to Bahamians?” The answer to this question is through the issuance of Bahamas Government Registered Stock (BGRS). This particular debt instrument isn’t necessarily bad; as a matter of fact, it can be quite beneficial to investors. For the purposes of this article, I’ll simply refer to them as government bonds.

Simply put, government bonds are issued when the government needs to borrow money. If an investor purchases these bonds, he/she is essentially purchasing a promise that the government will repay the borrowed money at a later date, with interest. Periodically throughout the year, the government will announce its intention to issue bonds to the public. You may have seen a few of these ads in the local newspapers, or on the Central Bank’s website. To the untrained eye, these advertisements may seem a bit complex.

Below is a breakdown of some of the terms you may run into:

  1. Open Date: This is the date that the sale of government bonds begins.

  2. Close Date: This is the date that the sale of government bonds ends.

  3. Issue Size: The issue size is the amount of money that the government seeks to borrow during that time.

  4. Tenor/Years: This is the amount of time before the government repays that particular bond issue.

  5. Interest: This is money paid regularly to investors for the use of the money borrowed. Interest for government bonds are usually paid every six months to your bank account. Interest rates are usually fixed, which means that it will not change over time. You may find that the longer the tenor, the higher interest rates may be. This is because a longer time horizon is viewed as more risky than a shorter time horizon. <