An Expert Explains: Treasury bond (Malta Government Stock)

Hundreds of millions of euro in Malta Government Stock has been issued over the last two years, which each issuance seeing remarkable demand from local institutional investors.

In today’s column, stockbroker Paul Bonello breaks down Malta's Treasuries, and why they can form an integral part of any investor's portfolio.

Paul Bonello has served as managing director of Finco Treasury Management Ltd for the last 30 years, and is a licensed stockbroker and accountant. During his long career, he has served on the boards of several structurally important companies, including Mid-Med Bank, Air Malta, Midi plc, and lectures at the University of Malta.

He explains:

Borrowings by central or national government - not by local authorities or government agencies or entities - that are transferable between investors on recognised markets are, by convention, known as Treasuries.

The most liquid and best quality government bonds are those issued by sovereign countries that have the highest credit ratings, particularly the United States, the United Kingdom, and other OECD countries.

In Latin countries the term is a derivative of the word “tesoro” or “obligazioni”. In Italy, for example, they are known as Buoni del Tesoro (BOT).

In Malta, government borrowings that are transferable on the Malta Stock Exchange are commonly known as Malta Government Stock, although they are in fact administered by the Treasury Department of the Finance Ministry.

They are issued in Euro for a nominal value of €100, and for various terms typically ranging between five and 30 years. The interest rate, or coupon, is a fixed rate. The issue price may be at a discount or at a premium if the issue consists of a tranche that is linked to an already existing bond.

Malta Government Bonds are typically issued by tender and allotted to the best bidders, and their price varies in line with market supply and demand, although the Central Bank of Malta, acting as Government broker, often intervenes and acts in such manner as to ensure that yields to maturity are in line with Euro-denominated government securities for the same credit quality and respective terms.

The yield to maturity indicates the effective return when taking into consideration both coupon on nominal value and appreciation or depreciation on price to maturity.

Malta Government Bonds are the best quality bonds available in Malta, and consequently, the yield, being primarily the price for credit risk, is much lower than corporate bonds.

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