Second auction of UAE's dirham treasury bonds oversubscribed 6.5 times amid strong demand

Bids worth Dh9.7bn were received for the Dh1.5bn offering

T-bonds are fixed-rate government debt securities that pay semi-annual interest payments until maturity. Pawan Singh / The National

The second auction of the UAE's conventional dirham-denominated treasury bonds was oversubscribed 6.5 times and achieved bids worth Dh9.7 billion ($2.64bn), the Ministry of Finance said on Monday.

The auction size of Dh1.5bn was distributed in two tranches of two and three-year notes, valued at Dh750 million each.

T-bonds are fixed-rate government debt securities that pay semi-annual interest payments until maturity, online financial encyclopaedia Investopedia said. They are also considered to be relatively risk-free.

The UAE government is represented by the Ministry of Finance as the issuer, in collaboration with the Central Bank of the UAE as the issuing and payment agent.

“The strong demand was across both tranches with a final allocation of Dh750m for the two year tranche and Dh750m for the three year tranche, with a total of Dh1.5bn issued in the second auction,” the ministry said in a statement.

“The success is reflected in the attractive market driven prices, which was achieved by a spread of a 27 basis points over US Treasuries for two years, and a spread of 25 bps over US Treasuries for three years. The second auction followed the practice of reopening the T-Bonds, which helps in building up the size of individual bond issues over time and improve liquidity in the secondary market,” it added.

In April, the Emirates announced the launch of a T-bonds issuance programme for 2022 with a benchmark size of Dh1.5bn, as part of plans to build a local currency bond market and diversify its financial resources.

The ministry plans to issue six treasury bond tranches in 2022 with a total value of Dh9bn. Other tranches will be issued with various tenures for up to five years at later dates throughout the year.

Ten-year tranches would be issued at a later time, according to the ministry.

Last month, the first auction of the UAE's conventional dirham-denominated treasury bonds was oversubscribed 6.3 times and achieved bids worth Dh9.4bn.

Six agent banks have been appointed by the Ministry of Finance as primary dealers for participants in the market auction of the T-bonds, including Abu Dhabi Commercial Bank, Emirates NBD, First Abu Dhabi Bank, HSBC, Mashreq Bank and Standard Chartered.

“The T-Bonds programme will contribute in building the UAE dirham denominated yield curve, providing safe investment alternatives for investors, strengthening the local debt capital market, developing the investment environment, as well as supporting sustainable economic growth,” the statement said.

The UAE raised $4bn last year through the issuance of multi-tranche sovereign bonds, marking the first time it issued bonds at the federal level.

The bond package, which is denominated in US dollars, included conventional medium- and long-term 10- and 20-year tranches, as well as 40-year dual-listed Formosa bonds, the Ministry of Finance said at the time.

The UAE plans to issue more dollar-denominated bonds in 2022, Younis Al Khoori, undersecretary of the Ministry of Finance, said last year. Individual emirates are also free to issue debt to meet their own needs, he said.