What are Government Bonds?

A bond is a fixed income instrument with longer term maturity, and it represents a loan between the issuer and investors. The investors lend funds to Government/borrower and earn a fixed interest called a coupon. Long-term bonds generally offer higher coupon rates compared to short-term bonds when issued under similar conditions to compensate investors for interest rate movements. Coupon payments are usually paid annually or semi-annually (for Botswana Government bonds is semi-annual coupon). Upon maturity of the bonds, the investor receives the principal amount invested as well as the last coupon. Generally, bonds can be priced based on their face value, or par value. Bonds that are priced above face value are said to trade at a premium, while bonds that are priced below their face value/below par trade at a discount.

However, the investor would be paid the full face-value of the bond at maturity. Currently, the government has seven outstanding bonds of maturities ranging from 0.7 years to 20.9 years as depicted by table 1 below.

Table 1: Government Bond Maturities

Note: BOTSGB stands for Botswana Government Bonds