An overview of Papua New Guinea’s government securities, including treasury bills, central bank bills, inscribed stock and the country’s sovereign bond.

The Bank of Papua New Guinea, PNG’s central bank, offers three investment portfolios to the public, banks and other financial institutions.

These are:

• Government Treasury Bills
• Government Inscribed Stock
• Central Bank Bills

An announcement is made for each auction with information about the details of terms, amounts of bills offered and the closing date for bids. The advice or Invitation to Bid is usually faxed out on Tuesdays, with the Auction taking place on Wednesdays, opening at 9am and closing at 11am. The total maturity for the week and average rates for the previous week’s auction are also provided to the invitee.

Government Treasury Bills

Treasury Bills is a discounted paper or security issued by the Government. It is a short-term debt instrument with current maturities of 91, 182 & 364 days. By issuing Treasury Bills, the Government borrows cash from investors and promises to repay with interest at a nominated maturity term agreed upon.

Investing in Treasury Bills is open to the general public. This includes financial institutions, non-financial institutions and individuals.

The Bank of PNG conducts the Treasury bills auction every Wednesday, from 9.00am to 11.00am. The minimum amount needed to participate at the auction is K100,000 with additional purchases in multiples of K10,000.

Inscribed stock

Central Bank Bills

The features of Central Bank Bills (CBBs) are similar to Treasury Bills. They are a short-term discounted paper with fixed maturities of 28, 63, 91 and 182 days, redeemable at par on maturity. The Bank of PNG has the discretion to set the amount to be issued/sold together with the terms/maturities. Interest rates or yields for CBBs purchased through an auction are determined by the investors when bidding. Investing in CBBs is restricted to only Commercial banks and other deposit-taking institutions.

Eligible investors can invest in CBBs by purchasing through an auction which is conducted every Wednesday (weekly) from 9am – 11am, at the Bank of PNG. All CBB investors must obtain a Registered Bidder status with the Bank before investing. Investors outside of Port Moresby can also purchase or invest in CBBs. Rates or yields are determined by investors themselves through bidding.

Sovereign bond

In September 2018, Papua New Guinea successfully raised $US500 million (K1.73 billion) for its first sovereign bond.  It allowed a diversification away from the government’s dependence on domestic banks and domestic financial institutions. It also exposed PNG to foreign currency risk for the first time. The raising meant that about 7 per cent of PNG’s government debt would be in US dollars.

The capital was to be used to:

• retire high cost short-term domestic debt,
• convert short-term debt to longer-term debt,
• bring in foreign exchange,
• fund expenditure in the 2018 budget.

The 10-year bonds have a yield of 8.375 per cent.  The successful offering reportedly drew more than US$3.3 billion in orders, most of which came from the United States.

Secondary bond market

There is no secondary bond market in PNG, so all government securities must be held to maturity. This reduces the overall level of liquidity in PNG’s capital markets. However, the IFC is proposing to create a AAA bond to deepen the capital markets as a first step towards creating a secondary bond.

Further information

Money Market Operations Unit/Registry Unit
Bank of Papua New Guinea
Telephone: +675 322 7355 /+675 322 7344/+675 322 7209 /+675 322 7202
Email: fmd@bankpng.gov.pg
www.bankpng.gov.pg