The National Treasury and Nedbank (NED) have confirmed that Nedbank Internet clients will only be able to buy the retail bonds launched on Monday by the Treasury from Tuesday on wards as "RSA Retail Bonds" needed to be loaded as an option on the "Approved Beneficiary" list.
The retail bonds were announced in the February 18 2004 Budget and on May 14 President Thabo Mbeki and Finance Minister Trevor Manuel bought the first and second retail bonds respectively.The general public could, however, only start buying from May 24 and Treasury officials said more than 30 individuals have bought retail bonds by midday on Monday.
The Treasury is due to release details on how many retail bonds have been bought in the normal monthly financing statement due for release on June 2.The retail bond initiative aims to meet part of the government's borrowing requirement through the issuance of bonds to the public.The launch of the RSA Government Retail Bond is also an effort to promote a culture of saving amongst citizens.
The term retail bond market is, however, a misnomer, as this market will be similar to the fixed deposit market and should attract some of the funds that are traditionally lodged with retail banks on long-term fixed deposits.Individuals will be allowed to invest a minimum of one thousand rand in the retail bonds compared with the minimum of one million rand that is necessary in the institutional capital market.
The principles guiding the launch of the retail bond market are accessibility, ease of use, simple pricing and reduced administration.Any individual can invest online night or day via the Treasury website, by post to the Treasury, or via one of 2,500 post offices.Initially the individual, who must be a South African resident and over 18 years old, can invest in either a two-year, three-year or five-year bond, which is held to maturity.
In case of financial distress or death, the Treasury will redeem the bond after a one-year holding period.At this stage there will be no secondary market and the retail bonds will be unique to the retail market.The interest earned, which will be paid semi-annually, will be subject to the same tax-free 11,000 rand limit earned on other debt instruments such as fixed deposits.
The Treasury will also allow the interest earned to be capitalised, so as to encourage saving.Treasury officials are aiming to eventually get 10% of the total bond market or around 40 billion rand, but most capital market participants say that this amount will be built up over time and only expect 3 billion rand in its first year.
