UAE launches domestic dirhams treasury bonds with a size of $400m

The issuance will provide foreign investors with an opportunity to invest in bonds denominated in local currency

The UAE announced the launch of conventional dirham denominated treasury bonds with a benchmark size of Dh1.5 billion ($400 million) to build a local currency bond market and diversify financing resources.

The T-bonds will be issued initially in two-, three- and five-year tenures and will be followed by a 10-year bond at a later date, the UAE’s Ministry of Finance said in a statement on Wednesday.

T-bonds are fixed-rate government debt securities that pay semi-annual interest payments until maturity, which could be between 10 and 30 years, according to Investopedia. They are also considered relatively risk-free.

“Issuing the T-Bonds in local currency will contribute to building a local currency bond market, diversifying financing resources, boosting the local financial and banking sector, as well as providing safe investment alternatives for local and foreign investors,” said Mohamed Al Hussaini, Minister of State for Financial Affairs.

“This issuance will also help build the UAE Dirham-denominated yield curve, thereby strengthening the local financial market and developing the investment environment.”

The issuance also provides pricing reference for other UAE markets (bond and equity), improves the country’s ability to cover future funding needs in dirhams, and will allow foreign investors to invest in bonds denominated in local currency, he added.

The first auction date for the T-bonds will be held in May and will be followed by periodical elections, the ministry said.

The finance ministry has also onboarded six banks, including Abu Dhabi Commercial Bank, Emirates NBD, First Abu Dhabi Bank, HSBC, Mashreq and Standard Chartered, as primary dealers to participate in the T-bonds primary market auction and to actively develop the secondary market.

“With the robust financial market infrastructure developed for the purpose, we are confident that the launch of such a programme will enable market participants in the UAE to maintain a transparent, single, diversified and sustainable pool of dirham liquidity,” said Khaled Balama, governor of the Central Bank of the UAE.

“It shall also contribute to the implementation of the new Dirham Monetary Framework and support the ongoing work on establishing the dirham risk-free pricing benchmark (yield curve), which would stimulate further domestic market activities.”

These securities will be auctioned and traded through Bloomberg’s Auction System and settled through a local platform, compliant with international standards, built and operated by Euroclear Bank.

The Ministry of Finance and the central bank worked with relevant government entities and international financial bodies to ensure best practice was followed when structuring the T-bonds, the statement said.