Imagine you lend money to a trusted local business. In exchange, they promise to pay you interest every year for 10 years for your support. At the end of the 10 years, they return the full amount you lent them. A treasury bond works similarly. You invest money in the government for a set period, receive regular interest payments, and get back your full investment when the bond matures.
When the government directly issues securities to raise money, those securities are called treasury securities. Treasury securities are considered risk-free because the government does not default on obligations as the government has the taxing power. It can always raise money through taxes to pay its obligations.
Treasury bills (T-bills) are short-term debt instruments with a maturity of one year or less. In contrast, treasury bonds (T-bonds) are long-term debt instruments with maturities greater than one year. In Bangladesh, T-bills are available in maturities of 91 days, 182 days, and 364 days, while T-bonds (BGTBs) come in maturities of 2 years, 5 years, 10 years, 15 years, and 20 years.
Treasury bills are sold at a lower price than their actual value, and when they mature, the government pays you the full amount. For example, if a 364-day Treasury bill is sold for 96 Taka, after 364 days, the government will give you 100 Taka. The difference of 4 Taka (100-96) is the profit you make from investing. On the other hand, Treasury bonds work differently. They pay you interest every six months, which is called a coupon, and at the end of the bond's term, you get your original investment back.
Difference Between Sanchayapatra and Treasury Bonds
The government securities market in Bangladesh consists of both tradable and non-tradable securities.
Non-tradable securities, such as National Savings Certificates (Sanchayapatra), are investments you can make, but they cannot be sold to others before the maturity date.
On the other hand, tradable securities include Treasury bills (T-Bills) and Bangladesh Government Treasury Bonds (BGTB), which can be bought and sold in the capital market before they mature.