The Government of South Africa via the National Treasury has to raise money in the financial market to finance the total Budget deficit during a fiscal year.
Most governments raise funds via the taxation system. However, to raise as much money as would be needed to fund the total government spending, the rate of taxation would be higher than is politically or economically acceptable.
To fund any shortfall (budget deficit) the government may borrow money by issuing bonds. These bonds are issued in the domestic currency and are deemed to be the securest form of investment in that currency.
National Treasury, are interest bearing bonds.
The bonds are listed on the Bond Exchange of South Africa. They trade in the capital market at the yield to maturity. The yield to maturity is the rate that your holding will yield over the life time of your Bond. There is an inverse relationship between a bond's yield to maturity and the price. If the yield goes up the price will go down and visa versa. Various economical internal and external factors e.g. the inflation rate, GDP, the currency etc. will influence the yield to maturity on a daily basis.
Bonds are normally bought at a discount (95.35672%) and mature at its nominal value (100%).
It pays interest semi-annually to the holder at the coupon rate.
Nominal * coupon rate/100Ã·2.
Bonds can however, trade at a premium, that is when the yield to maturity is lower than a particular bond's coupon rate.
The National Treasury issues various types of bonds, e.g. Vanilla Bonds, Variable Bonds, CPI Bonds and Zero Coupon bonds. These Bonds are currently available across the yield curve until 2027.
RSA Bonds can be bought at any Bank or Broker who is a member of the South African Bond Exchange.