Government of Bhutan issued a sovereign bond of Nu.3 billion for 3 years at an interest of 6.5% last year September.

The government is issuing one more bond at the same amount but for 10 years maturity period. The rate will be decided at the end of auction.

The face value of the Bhutan government sovereign bond is Nu.1,000 and the investor must subscribe minimum of Nu.10,000 or 10 units.

The govt of Bhutan issues bond when they need money but doesn’t want to print more money. It’s to reduce liquidity and control an inflation.

Bhutan government Bond Market

Let us base our calculations on the sovereign bond issued in September 2021. Dorji has invested Nu.300,000 in that bond.

Since the coupon rate is 6.5% p.a, Dorji will get Nu. 9,750 every 6 months as the coupon payment.

Dorji will earn Nu. 58,500 in total on the maturity of the bond. Investment capital of Nu.300,000 will be refunded.

Is it Good to Invest in Govt Bond?

Bond is a good investment for people with low risk appetites and need a regular income. All bonds have low risk. 

Bond is recommended for elder people as they cannot afford to take risk. Bond provides predictable regular income for investors.

When the stock market is volatile and monetary policies unpredictable, it is good to have some portion of portfolio in bond.

Bond is quite liquid. This means you can trade them in stock exchange of Bhutan just like shares of public companies.

Bond & Deposit: Which is Better?

When it comes to investing in bonds, we must compare with FD’s returns as they are quite similar to level of investing risk.

Bank’s interest rates for deposits is 7.25%. TBank also accepts deposits at the same rate.

It means if Dorji keeps his Nu.300,000 in Fixed Deposit, after 3 years his interest income would be Nu.70,094 (compound interest).

Bond’s return is simple interest but banks give compound interest. In an absolute figure, he’ll earn Nu.11,594 more keeping in a bank.

But that one is without considering the time-value of money and coupon income isn’t invested for returns. 

We can trade bonds like shares in stock market whereas we have to wait till maturity for the bank deposits.

Am I investing in the Govt Bond?

I have regular income. I’m young and can handle risk. Investing in bonds isn’t for me now.

It seems the rate won’t be above 7%. This means its return is lower than bank deposits.

From the personal income tax perspective, interest from bond as well as from FD aren’t taxable in Bhutan. So it won’t make difference.

I would rather build my stock portfolio and keeping emergency fund in a bank. I won’t invest in bonds for now. 

What are your views on investing in Bhutan govt bonds? Will you invest in this bonds?

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