Question 1

What is Yield?

Accepted Answer

The yearly return you get if you buy at today's price and hold the security until the government repays it. It is the number to compare securities on, because it already accounts for what you pay as well as what you are paid.

Question 2

What is Coupon?

Accepted Answer

The fixed interest rate printed on a bond when it is issued, paid on the face value rather than on what you paid. Ugandan government bonds pay it twice a year, every year, until maturity.

Question 3

What is Face value?

Accepted Answer

The amount the government repays you at the end, and the amount the coupon is worked out on. It is not what you pay today — a bond can be bought for more or less than its face value depending on where rates have moved since it was issued.

Question 4

What is Treasury Bill?

Accepted Answer

Government borrowing for a year or less — Uganda issues 91-day, 182-day and 364-day. There are no coupons: you buy below face value and are repaid the full amount at the end, and the difference is your return.

Question 5

What is Treasury Bond?

Accepted Answer

Government borrowing for two years or more, paying a coupon twice a year and repaying the face value at maturity. Uganda issues out to twenty years.

Question 6

What is Tenor?

Accepted Answer

How long until the government repays. A 91-day bill and a 20-year bond are the two ends of what Uganda issues.

Question 7

What is Maturity date?

Accepted Answer

The day the government repays the face value and the security ends. There are no payments after it.

Question 8

What is Withholding tax?

Accepted Answer

Tax taken off each coupon before it reaches you. In Uganda it is 10% on securities of ten years and over, and 20% below that — so a long bond keeps more of its headline yield than a short one, and comparing two securities before tax can point you at the wrong one.

Question 9

What is Net yield?

Accepted Answer

What is left after the deductions that apply to that particular thing: withholding tax on a government security, the annual management fee on a unit trust. It is the only basis on which a fund and a bond can honestly be compared.

Question 10

What is Yield curve?

Accepted Answer

Today's yields plotted against tenor, from the shortest bill to the longest bond. Normally it slopes up, because you are paid more for tying money up for longer; when it does not, the market is expecting rates to fall.

Question 11

What is Clean price?

Accepted Answer

The price a bond is quoted at, per 100 of face value. It leaves out the interest that has built up since the last coupon, which is why it is not the amount that leaves your account.

Question 12

What is Dirty price?

Accepted Answer

What you actually pay: the quoted price plus the interest the seller has earned since the last coupon date. You get that part back at the next coupon, so it is not a cost — but it is cash you need on the day.

Question 13

What is Accrued interest?

Accepted Answer

Interest the seller has earned but not yet been paid, because the next coupon date has not arrived. You reimburse it at settlement and the government pays it back to you with the full coupon.

Question 14

What is Bid and ask?

Accepted Answer

The two prices a bank will deal at — one to buy from you, one to sell to you. These are quoted as yields, so the bid is the higher number: a bank buying your bond bids a higher yield, which is a lower price. The gap between them is the cost of dealing.

Question 15

What is Secondary market?

Accepted Answer

Where securities already issued change hands between investors, rather than being bought new from the government at auction. It is how you sell before maturity, and how you buy on a day there is no auction.

Question 16

What is Money market fund?

Accepted Answer

A unit trust that pools savers' money into short-dated deposits and Treasury Bills. Its published yield is usually before the manager's annual fee, which is why the fee has to be subtracted before comparing it with a bill you could buy yourself.

Question 17

What is Holding period return?

Accepted Answer

What you actually make over however long you hold, including any change in the security's price — not only the coupons. It is the honest number when you do not intend to hold to maturity.

Question 18

What is Annualised return?

Accepted Answer

A return restated as a per-year figure, so that something held for three months and something held for five years can be put side by side.

Question 19

What is Duration?

Accepted Answer

Roughly how much a bond's price falls if yields rise by one percentage point, expressed in years. A 15-year bond moves far more on the same news than a 2-year one, which matters only if you might sell before maturity.

Question 20

What is PVBP?

Accepted Answer

Price value of a basis point — how many shillings the price of 100 of face value moves for a 0.01% change in yield. A trader's unit; safe to ignore if you intend to hold to maturity.

Question 21

What is ISIN?

Accepted Answer

The twelve-character code that identifies one specific security, like UG12H2035. Treasury Bills do not have one — Bank of Uganda does not publish ISINs for them — so bills are identified by their maturity date instead.