15-year T-bond yield rises to 15.35pc amid undersubscriptions

THE weighted average yield to maturity (WAYTM) of the 15 years Treasury bond went up by 30bps to 15.35 per cent as the auction saw a notable undersubscription.

The offer size for the auction stood at 184bn/- similar to the previous comparable auction.

The tender size was 59.55bn/- from 61 bids, compared to 240.49bn/- from 186 bids in the previous similar auction.

The Bank of Tanzania (BoT) accepted 51 bids worth 59.13bn/- compared to 184bn/- in the previous auction.

Likely, the bond’s underperformance is due to being in between two long term auctions of 25-years and 20-years bonds.

The market has a clear preference for long-term tenors, evidenced by the substantial subscription in their auctions.

The low subscription in the auction under review led to an increased Treasury yield, maintaining a trend seen since the end of June.

Rising Treasury yields are contrary to general expectation, especially as the monetary policy anchor rate, the 7-days interbank rate, hovering above the upper threshold of 8.0 per cent.

The development in the interbank rate signals a shortage of liquidity in the banking sector and the central bank began injections since 22nd August 2024 through reverse repo instruments.

While the central bank injects liquidity into the banking sector, rising yields stand to drain deposits and crowd out the private sector.

Rising yields attract depositors to invest in fixed income assets, particularly Treasury bonds.

With the market’s preference for long-term tenors due to their high yields, it is difficult for banks to compete for deposits especially with deposits instruments of not more than three (3) years.

Moreover, high risk-free rates incentivise banks to invest in Treasury bonds rather than lend to riskier borrowers.

This drain of capital from the economic system further raises risks of lower consumption and production, adding to illiquidity circle and threatening business expansion.

The central bank had planned on a moderately tighter monetary stance for Q3-24 due to increased foreign exchange challenges.

The stance is warranted by the fear of imported inflation from a potential depreciation of the Tanzanian shilling in case of increased pressure on the demand of US dollar.

Availability of US dollars is expected to improve beginning October following an expected rate cut by the US Federal Reserve in mid-September.

Moreover, a rate cut by the Federal Reserve is expected to reestablish foreign inflows into emerging and frontier markets globally.

Foreign investors have been flowing out of such markets for the last three years, evading foreign exchange risks in developing economies.

The net foreign outflow from the Dar es Salaam Stock Exchange (DSE) since the beginning of the year stands at 26.82bn/- (9.58 million US dollars).

On the other hand, foreign investors accounted for 7.56 per cent of total equity purchases during the week that ended on 13th September 2024 and 2.86 per cent of equity sales.

While the total equity turnover was 2.93bn/-, the net foreign inflow amounted to 137.75m/-, a positive development different from most weeks in the last three years.

Equity turnover for the week under review went up 327 per cent following two consecutive weeks of declining and realising a turnover less than 1.0bn/-.

In a peculiar occurrence, DCB Commercial Bank (DCB) was the top mover for the week, accounting for 34.8 per cent of the total equity turnover for the week.

This follows a block transaction of 7 million shares of DCB at a price of 145/- per share.

Other top movers include CRDB and NMB, accounting for 25.9 per cent and 21.7 per cent respectively.

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Both major indices were in the red during the week under review, where the All-Share Index (DSEI) and the Tanzania Share Index (TSI) dropped by 1.01 per cent and 0.62 per cent respectively.

The drop on the TSI reflects a drop of prices on CRDB and NMB counters as they collectively represent 36 per cent of the domestic market capitalisation.

Prices of CRDB and NMB dropped by 1.49 per cent and 1.85 per cent respectively.

The drop of CRDB and NMB is likely out of lack of corporate events since the end of July when banks published financial results, while the market awaits Q3-24 results in October to determine performance trend for the 2024.

Another loser for the week was National Investment Company Ltd (NICOL) which saw its price drop by 5.26 per cent.

The price of NICOL drops despite the company’s announcement of an annual general meeting which shall be held on 28th September 2024 at the Julius Nyerere International Conference Centre (JNICC).

Among the agendas of the AGM is ‘to receive and approve the company’s dividend policy’ which has been an outcry from shareholders for years.

The lack of a dividend policy for NICOL has been the reason for volatility of its share price.

Two companies, DCB and DSE, saw their prices appreciate during the week under review.

DCB wet up by 10.71 per cent while DSE climbed 1.67 per cent.

The price of DCB has been volatile in the last two years as investors remain optimistic of the overall banking sector and the recent change in management of the bank.

DSE saw a slight rebound after the price dropped in the ex-dividend period