How government securities work

Brokers trading at the stock market in Kampala recently. PHOTO BY ERONIE KAMUKAMA

What you need to know:

Many people always want to invest in different income-generating ventures, but few think of government Treasury bills or bonds. Could this be that there is a general lack of knowledge about these two? Mark Kamugisha demystifies what these bills and bonds are.

The government has to undertake a lot of work and this work costs money.
While it raises funds through taxes and other means, this may not always cover its needs. If one thinks of the government as a household, it has an income (taxes), it has expenditures (salaries and so on) and from time to time its needs to borrow.

The government borrows by issuing securities known as Treasury Bills (T-bills) and Treasury Bonds (T-bonds). These securities act like an I.O.U (I Owe You). People hand over their Shillings and receive a promise from government to pay them back.

T-bill or T-bond auctions are referred to as the Primary Market because it is the first time the securities are being traded. Thereafter, any trades (purchases or sales) are undertaken in what is known as the Secondary Market.

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