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Key Instruments

Treasury Bills and Treasury Bearer Bonds

Treasury Bills
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These are short-term government borrowing instruments introduced in 1964 with a 91-day term to mature. As investment assets they are sold by auction in weekly lots with tap issues to Discount House, Banks and other public agencies. Treasury Bills are issued through commercial banks and Discount House as primary market dealers, on a discount basis -that is, they are sold originally at a price below their face value, with face value payable at maturity. The difference between the price and face value constitutes the interest payment. Treasury Bills are also important financial instruments used by the Bank of Sierra Leone in operationalising its Monetary Policy Management.

Owing to its short-term nature Treasury Bills are more attractive to commercial banks both as a reserve and investment assets since they best match their liabilities, a substantial proportion of which are short term. Nonetheless, Treasury Bills are available to both bank and non-bank investors alike who can participate" in either the primary or secondary market.

In the primary market where Treasury Bills are first issued, direct participation is restricted to only institutions that hold accounts with the Bank of Sierra Leone, having sufficient funds. Non-account holders however may also participate through the commercial banks or the Discount House which serve as agents of the central bank. In the secondary market where outstanding issues of Treasury Bills are traded there is no limitation to participation. Any potential investor can buy or sell Treasury Bills directly from other individuals or institutions based on the terms of their bilateral negotiation. However, secondary market transactions with the central bank require the participants to hold an account with the Bank. Meanwhile, tap issues are limited to the Discount House only. Treasury Bills are issued every week Thursday in an auction mechanism where average annual yields are determined based on submitted bids. Bids are submitted for a minimum of Le50,000 increasing in multiples of Le50,000 to the offer amount. They are issued in non-material form, i.e. holdings are reflected in book entries maintained by the central bank. Instructions for transfer of holdings are done generally through the central bank. Interest income on maturity will attract withholding tax at the current rate of 15% while disinvestments will attract additional penal charges at the current rate of 5%.

Treasury Bearer Bonds
These are government securities introduced in 1993 with a 12 (twelve)- month term to maturity. They were introduced as a vehicle for savings mobilisation specifically targeting the non-bank public. They are issued in the primary market at face value in monthly auctions. Being bearer instruments, they carry no names and are issued in material form with a certificate bearing the face value of the bond, interest rate, dates of issue and maturity and four coupons attached representing quarterly interests. Since interest payments are made quarterly, each interest coupon is presented quarterly, on maturity, to any commercial bank or Discount House for payment. Commercial Banks and Discount House participate in the primary market as agents through which customers bid for Treasury Bearer Bonds. The minimum for such bids should be Le50,000 increasing in multiples of Le50,000 to the offer amount.

Since Treasury Bearer Bonds carry no name, they can be transferred in secondary market transactions by simple delivery following acceptable bilateral negotiation of terms. The current rate of withholding tax on all investment income will also apply to Treasury Bearer Bonds and are deducted at the time of interest payment. Customers who wish to sell their bonds before maturity are free to do so either to individuals or institutions at a penalty .As a last resort, the Bank of Sierra Leone, through commercial banks stands ready to buy such bonds at a discount.


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