What does it mean when Cental Bank of Lesotho says it sells Bonds?

Bonds are financial instruments that represent debt obligations. When you invest in a bond, you are essentially lending money to an entity, typically a government or corporation, for a fixed period of time. In return for your loan, the issuer of the bond promises to repay the principal amount (the face value) when the bond matures, and they also pay periodic interest payments to the bondholder.

There are various types of bonds, including government bonds, corporate bonds, municipal bonds, and international bonds. Government bonds are issued by national governments, while corporate bonds are issued by companies to raise capital. Municipal bonds are issued by local governments or municipalities to fund public projects.

Here are important terms to know in order to understand bonds:

1. Face Value: The face value, also known as the par value or principal, is the amount that the bondholder will receive when the bond matures. It typically has a minimum of M5000.

2. Coupon Rate: The coupon rate is the annual interest rate paid by the issuer to the bondholder, expressed as a percentage of the bond's face value. For example, if a bond has a face value of M5,000 and a coupon rate of 5%, the bondholder will receive M250 in annual interest payments (M5,000 x 0.05).

3. Maturity Date: The maturity date is the date when the bond reaches the end of its term, and the issuer is obligated to repay the bondholder the face value. Bonds can have short-term (less than a year), medium-term (1-10 years), or long-term (more than 10 years) maturities.

4. Yield: The yield is the effective rate of return on a bond and takes into account the bond's current market price, its face value, and the coupon payments. The yield may differ from the coupon rate if the bond is trading above or below its face value.

5. Bond Market: Bonds are traded in the bond market, which is a decentralized global marketplace. Investors can buy and sell bonds on exchanges or over-the-counter (OTC) markets. The bond market is generally less volatile than the stock market and is often favoured by investors seeking stable income and capital preservation.

Let me make an example with treasury bonds which are normally issued at Central Bank of Lesotho(CBL). This is an advert which was made by CBL, it was made to make people aware of the bonds which were to be issued on the 24th of August 2022. CBL normally advertises bonds on its social platforms or sometimes on newspapers like The Reporter.

Source: The Central Bank of Lesotho Facebook page

• Bond Description - this is the name of the bond which was being issued, which is: 7 Years 9.5% fixed coupon bond LS000A3K1F17

• Maturity date - the date when the investors of that bond will be getting back the money which they have invested: 2029 Feb 21

• Amount offered - the amount of money which is needed, or perhaps the worth of Bonds being sold: LSL 200 million

•Years to maturity- the number of years which thus bond will take before maturing: 6.5 years

• Coupon rate - the amount of interest which investors will be getting per annum until the bond matures: 9.50%

• Bond equivalent yield - Bond equivalent yield is a calculation that annualizes the yield of a bond to make it comparable to other fixed-income instruments on an annual basis: 10.19%

• Coupon payment - when will investors get the coupon rate in a year, which is 9.50% dived into 2: February & August

• Issuance: "re-open" refers to a subsequent offering of additional bonds that have the same characteristics and terms as a previously issued bond.

It's important to conduct thorough research and consider your investment goals, risk tolerance, and time horizon before investing in bonds. Consulting with a financial advisor or investment professional can also provide valuable guidance in navigating the bond market.