Fourth auction of dirham treasury bonds oversubscribed 5.7 times

The auction, which witnessed the first issuance of five-year T-bonds, received bids worth $2.3bn

T-bonds are fixed-rate government debt securities that pay semi-annual interest payments until maturity. Antonie Robertson / The National
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The fourth auction of the UAE's conventional dirham-denominated treasury bonds was oversubscribed by more than 5.7 times and achieved bids worth Dh8.6 billion ($2.34bn), the government said on Monday.

The latest auction, which witnessed the first issuance of five-year T-bonds, received strong demand through the six primary bank dealers.

T-bonds are fixed-rate government debt securities that pay semi-annual interest payments until maturity, and they are also considered to be relatively risk-free, online financial encyclopaedia Investopedia said.

In the T-bonds auction, the UAE government is represented by the Ministry of Finance as the issuer, in collaboration with the Central Bank of the UAE as the issuing and payment agent.

The success is reflected in the attractive market-driven prices, which were achieved by an 8-basis point (bps) spread over US Treasuries for two years and a spread of 20 bps above US Treasuries for five years, the government said in a statement.

The two-year tranche achieved a demand of Dh3.95bn, while the five-year tranche achieved a demand of Dh4.65bn.

The new five-year T-bonds will contribute to the strengthening of the local debt capital market and building the UAE dirham-denominated yield curve, said Mohamed bin Hadi Al Hussaini, the UAE’s Minister of State for Financial Affairs.

Establishing an active market for trading the T-Bonds will raise the efficiency of pricing and capital allocation and support the development of the broader capital market. It also provides safer alternatives for foreign investors to invest in local currency, Mr Al Hussaini said.

“The T-bonds support the country's financial and economic policies aimed at achieving comprehensive and sustainable economic development,” he added.

“They also help boost the financial market and credit structure, and create a multi-investment environment that contributes to making the UAE an ideal investment destination, particularly as the country enjoys a strong credit rating by international credit agencies.”

The T-bonds programme supports the UAE's efforts to cover future financing requirements. These bonds also contribute to diversifying funding sources and reducing dependence on foreign capital markets, as part of the transition to the new economic model.

In April, the UAE announced the launch of a T-bonds issuance programme for 2022, with a benchmark size of Dh1.5bn as part of plans to build a local currency bond market and diversify its financial resources. This is part of the total Dh9bn T-Bonds issuance programme for this year.

The first, second and third auctions of the UAE's conventional dirham-denominated treasury bonds were oversubscribed 6.3 times, 6.5 times and 5.1 times, respectively.

“The issuance of five-year T-bonds in the national currency is an advanced stage in the UAE’s plans and directions towards diversifying capital markets activities, building UAE dirham-dominated yield curve, and achieving dirham monetary framework objectives,” UAE Central Bank Governor Khaled Balama said.

“It also reflects the robustness and stability of the country’s financial system and the confidence of local and international investors, thus enhancing UAE’s position as a global financial hub.”

The UAE raised $4bn last year through the issuance of multi-tranche sovereign bonds, the first time it issued bonds at the federal level.

The bond package, which is denominated in US dollars, included conventional medium and long-term 10 and 20-year tranches, as well as 40-year dual-listed Formosa bonds, the ministry said at the time.

Updated: September 14, 2022, 7:05 AM