Investor frenzy pushes bonds, banks rally

DAR ES SALAAM: CAPITAL markets remain buoyant as cash-rich investors keep piling into both government paper and select equity counters, extending a rally that shows no signs of cooling.

Analysts say the excess liquidity sloshing through the financial system is compressing yields across the bond curve while pushing valuation gains in resilient equity names.

With limited alternatives, investors are deploying funds aggressively into any assets offering steady returns, sustaining upward momentum despite a generally cautious macroeconomic backdrop.

Alpha Capital Head of Business Development and Customer Services, Godfrey Kamugisha, said the weight of liquidity in the financial system is becoming increasingly evident.

“In the short term, this is likely to continue inflating asset prices across both equities and fixed income, sustaining momentum in the capital markets,” he said.

He said declining yields in recent auctions signal a deeper market shift. Fortnight ago, during the 25-year Treasury Bond auction, a total of 1.2 tri/- was tendered against an offer of just 241 bn/-, an indication of significant excess demand.

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This trend appears to be continuing in the most recent Treasury Bills (T-Bills) auctions, suggesting an abundance of capital seeking deployment.

“In summary,” Mr Kamugisha noted, “this week’s data points continue to affirm the broader trend of falling yields, driven by the Bank of Tanzania’s (BoT) policy guidance.” Last Wednesday, the BoT conducted another TBills auction.

The 364-day paper’s auction had an offered amount of 75bn/-, but investor demand soared, with 226.54bn/- tendered, an oversubscription of 151.54bn/- and BoT accepting only the exact offered amount, mirroring its approach in the recent T-Bond auction.

Mr Kamugisha said the weighted average yield continued its downward path, falling 93.26bps to 6.9156 per cent from 7.8482 per cent in the previous 365 days T-Bills auction.

“The persistent decline across the yield curve reinforces the structural trend toward lower rates,” he said.

He added that demand pressure across the yield curve is inflating asset valuations. Looking ahead, Mr Kamugisha expects the current momentum to persist.

“As long as excess liquidity remains in the system, fixed income will stay well bid and that should keep feeding into selective gains on the equities side,” he said.

Zan Securities said the equity activity on the Dar es Salaam Stock Exchange (DSE) gained momentum in recent weeks, with banking counters leading the charge, though analysts caution the rally remains narrowly focused. Zan Securities weekly wrap-up report said the gains have largely come from financial stocks, leaving other sectors trailing.

“Equity activity has picked up, with banks driving gains while industrials lag, making the recent rally selective rather than broadbased. The bond market is showing firm demand, particularly for long-dated paper,” the report said.

According to the report, the bond market continues to overshadow the equities arena, with sustained appetite for long-dated instruments.

“Looking ahead,” the report said, “we expect continued selective upside in banking and a handful of industrial names, but fixedincome will remain the primary market driver. The central bank reopened a 15-year Treasury yesterday and we anticipate yields up to about 12 per cent, which should sustain investor interest in bonds and likely tamper exuberant equity moves,” the report said.

Last week, the sector Indices showed that the Industrial and Allied Index (IA) closed at 4,434.02 points, down by 5.17 per cent, Bank, Finance and Investment Index closed at 10,751.23 points, up by 12.7 per cent while Commercial Services Index closed at 1,752.60 points, up by 4.63 per cent.