Lending to the government
When the government needs to borrow it sells securities. You lend it money and it agrees to repay on a set date, usually with a return. They are generally lower risk than shares, but not risk-free.
Stock Market Basics · Lesson 8 of 10
Treasury bills and bonds
How lending to the government works, how discount pricing is calculated, and the risks.
6 minutes · 8 questionsLesson 8 · Card 1 of 4
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Lending to the government
When the government needs to borrow it sells securities. You lend it money and it agrees to repay on a set date, usually with a return. They are generally lower risk than shares, but not risk-free.
Treasury bills
In Ethiopia, the National Bank of Ethiopia auctions treasury bills for the Ministry of Finance, with maturities of 28, 91, 182 and 364 days. A bill pays no regular interest. You buy it at a discount and receive the full face value at maturity.
Discount pricing
If you pay 96,500 birr for a bill with a face value of 100,000 birr, the 3,500 birr difference is your return. A discount rate is calculated on the face value, so the yield on the money you actually paid is a little higher.
The risks
Inflation can erode what you get back. If rates rise, the market value of what you hold falls. You may not be able to sell early. Policy and access rules can change.