Financial Markets

The Central Bank of Lesotho actively promotes the development of financial markets within Lesotho.

Mandate

The Bank's responsibilities in the development of Lesotho Financial markets include the following:

Managing Official Foreign Reserves: The CBL oversees the reserves to preserve their value and provide liquidity for external payments on behalf of the government.

Monetary Policy Implementation: Through Open Market Operations, the Bank influences monetary policy.

Domestic Debt Management: The CBL manages the issuance and redemption of Treasury Securities.

Reserves Management

The Central Bank of Lesotho, through its Financial Markets function, has a crucial responsibility: to own, hold, and manage the country’s official international reserves. These reserves serve two primary purposes:

Preserving Currency Value: The bank holds reserves to maintain the value of the Loti (LSL), Lesotho’s currency. This ensures stability and confidence in financial transactions.
Meeting International Obligations: By having adequate reserves, the bank can promptly settle any external obligations the country may have.

To achieve these goals, the bank focuses on three key objectives:

Liquidity: Ensuring there is enough cash available to meet external obligations.
Safety and Value: Safeguarding the international value and safety of the reserves.
Reasonable Returns: Managing the reserves to earn reasonable returns.

Government Domestic Debt

Treasury Bills

Types of Treasury Bills (T-Bills): The Central Bank of Lesotho offers four T-Bill tenors: 91, 182, 273, and 364 days.

T-Bills are divided into two markets:

Non-Competitive Market: For amounts between M5,000 and M99,900, the price is predetermined. Everyone in this market buys at the same price. Participants include the general public and small to medium-sized companies.

Competitive Market: For amounts above M100,000, participants specify their desired yield rate. T-Bills are sold to those with the lowest yields. Participants here are mainly commercial banks, insurance companies, and large corporations.

T-Bill Features:

Maturities: T-Bills do not exceed 364 days.
Issuance: The bank issues T-Bills on a discount basis, in multiples of M100.
Redemption: They are redeemed at face value upon maturity.
Bid Price Calculation: The bid price considers the actual days to maturity (365 days in a year) using this formula:
Bid Price=Face Value−(Face Value×Discount Rate×Days to Maturity/365)
Auction Process: Insert and inforgraphic for better communication
Announcements: New T-Bill issues are announced through local newspapers and the Bank’s website.

Bidding: Anyone can purchase T-Bills. The minimum bid for all tenors is M5,000. Auctions: Held twice a month on Wednesdays.

Results: Announced at 2 p.m. on the auction day.
Payment: Successful bidders must pay immediately after results are announced.
Consequences: Failure to pay results in a 6-month ban from future auctions.
Investor Statements: Investors can request a statement showing their T-Bill holdings (face value and maturity date).

Treasury Bonds

The Central Bank of Lesotho acts as the fiscal agent for the Government and issues Treasury Bonds.

These bonds have a maturity of more than one year. When you buy Treasury bonds, you are essentially lending money to the Government for a specific period (the bond’s maturity).

Interest payments (called coupons) are disbursed semi-annually based on the bond’s face value.

Objectives of Issuing Bonds:

Budget Financing: Treasury bonds help finance government budget needs.

Market Development: They also contribute to developing the domestic debt market.

How It Works: insert infographic for better communication

At the start of each fiscal year, the Ministry of Finance assesses the budget gap to be filled from the domestic market.
The Central Bank then creates a borrowing plan and conducts auctions to issue Treasury bonds.
These bonds come in four maturities: 3, 5, 7, and 10 years.
Investors include commercial banks, pension funds, insurance companies, corporations, and individuals.
Auctions occur every three months.
While secondary market trading is growing slowly, many investors prefer to hold bonds until maturity.
The bonds are listed on the Maseru Securities Market (MSM) for secondary trading.
Bid amounts follow similar rules as for treasury bills.
Reasonable Returns: Managing the reserves to earn reasonable returns.

Secondary Market Trading

Secondary market trading of Treasury securities issued in the primary market is done over the counter. Holders of such securities are free to trade them with any counterpart in the market. Changes in ownership shall only be effected by both parties to a transaction and upon completion of form CBL/TBR/2. On the day the transaction takes place, both the buyer and the seller, or their respective authorised representatives shall present themselves simultaneously at the Bank to complete the transaction. The Bank shall only act upon instructions contained in form CBL/TBR/2 completed and signed by authorised signatories of both parties to the transaction.

Premature Disinvestments

The Central Bank of Lesotho stands ready to buy treasury securities from investors provided that such a purchase shall take place at least five (5) working days prior to maturity date of the securities. The Bank offers a rediscounting facility through which it can only buy back the Treasury securities provided that 75% of the maturity period has elapsed.

Securities used as Collateral

Investors may use their securities as collateral against borrowing from third parties provided that the maturity date of the loan comes before the maturity date of the securities being used as collateral.

Investment Opportunities