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Federal treasury bonds (T-Bonds) are domestic bonds issued by the UAE federal government denominated in the Emirati Dirham (AED). With the nation’s strong economy and high credit standing from major international rating agencies, T-Bonds offer opportunities for local, regional, and global investors seeking to diversify their investment portfolio.
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The primary objective of local currency bond issuance is to develop the UAE yield curve which serves as 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 bond interest rates across various maturities and indicates the expected return on capital over different investment terms.
Issuing local currency bonds provides major benefits that fuel growth and stability across the UAE’s financial landscape, including:
Diversifying funding sources and minimising dependency on the foreign capital markets
Expanding the investor base for local currency bonds to reduce exposure to rollover and foreign exchange fluctuation risks
Providing local investors with the opportunity to invest in local government securities in UAE dirham
Offering alternative financing resources for the private sector, banks, and financial institutions in the UAE
T-Bonds are fixed-income investment securities offered for subscription for investors. Purchasing T-Bonds means lending the federal government (bond issuer) an agreed amount of money for a specified term. In return, the investor (bondholder) receives regular interest payments from the government, known as the ‘coupon’. The bond issuer fulfils its debt obligation once the bond reaches its ‘maturity date’ or the date on which the bond’s principal amount, known as the ‘face value’ or ‘par value’, must be paid in full. The process involves the following steps:
The government issues T-Bonds, which the investor subscribes to by purchasing them at the determined issue price.
The government makes fixed, periodic interest payments to the investor.
Upon maturity, the government repays the bond’s face value, including outstanding interests.
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