Government Bonds

Treasury Bills (T-Bills), Pakistan Investment Bonds (PIBs) and GoP Ijara Sukuks are issued by the State Bank of Pakistan (SBP) on behalf of federal government. These are short to long term sovereign bonds with maturities ranging from 1 Month to 30 Years and are offered in discounted, fixed and floating rate options. The profit on the investment is paid in the form of coupon payments. The coupon payments are paid at a fixed or floating rate, as the case may be. Government Bonds are only redeemable at maturity. However, an investor can sell them in the secondary market through a dealer.  

Benefits

• Guaranteed Repayment: The repayment of face value at maturity and periodic coupon payments are guaranteed by the government of Pakistan.
• Higher Return: These securities provide higher returns to the investor, as compared to most bank deposits.
• Accepted as Collateral: These bonds are acceptable by the banks as collateral.
• Liquidity: Highly liquid and tradable in the secondary market.

Corporate TFCs

A Term Finance Certificate (TFC) is a corporate debt instrument issued by companies in Pakistan to generate short to long-term funds. The maturity of the certificate depends on the issue of the bond. TFCs typically provide higher yield compared to Government Bonds and Bank Deposit due to higher risk.

Types of TFCs

• The TFCs issued to date include both fixed and floating rate instruments, although issuers have lately tended to favor the floating rate variant. 
• The coupon rate on floating rate TFCs is set at a risk-free benchmark rate plus a risk spread to reflect the relative risk of the instrument. The risk-free benchmark is typically the SBP’s discount rate, auction yield on the government bonds of equivalent maturity, or KIBOR.
• Floating rate TFCs may impose caps and floors on the coupon payments. 
• Some TFCs may have embedded call and put options.

Like bonds, TFCs are structured to provide regular income in the form of coupons, which are typically paid semi-annually. Unlike generic bonds, where the principal is repaid in lump sum at maturity, a TFC’s principal is gradually redeemed over the tenor of the instrument, however the option of bullet payment at maturity is also often provided by certain corporate issuers.