High T-bond bids signal untapped investment potential

DAR ES SALAAM: THE overwhelming demand for Tanzania’s 25-year Treasury bond points to a substantial pool of capital seeking long-term investment assets, creating an opportunity to channel funds into government financing and broaden investment options in the capital market.

According to Bank of Tanzania (BoT) auction results, competitive bids reached 2.16tri/- against an initial offer of 289.93bn/-, highlighting the potential to attract more investment into long-term government securities while strengthening the market’s capacity to mobilise capital for infrastructure and other development priorities.

Financial educator, Edmund Mnyagi, said the strong response reflects the availability of substantial amounts of money seeking investment opportunities, underscoring the need to expand investment options to accommodate growing investor appetite.

In his analysis shared on Instagram, Mr Mnyagi described the level of demand as historically significant, comparing it with a previous high of approximately 1.3tri/-.

The auction involved a 25-year government bond carrying a coupon rate of 12.75 per cent and maturing on October 16, 2051. The results show that competitive bids totalled 2,159.78bn/- against the advertised 289.93bn/-, equivalent to about 7.45 times the amount offered.

However, accepted competitive bids amounted to 426.08bn/-, exceeding the initial offer but remaining substantially below the total value of bids submitted.

The difference between bids submitted and those accepted illustrates that strong investor demand does not automatically translate into equivalent government borrowing.

The outcome also depends on the prices investors offer and the terms at which the issuer is willing to sell the securities.

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Mr Mnyagi also drew attention to the prices investors were willing to pay for the bond, noting that the highest bid price was 118.8, while the cut-off price was 115.5.

In the bond market, prices are quoted against a face value of 100. A price of 118.8 means an investor pays 118.80/- for every 100/- of face value, before any applicable additional costs.

For example, a bond with a face value of 1m/- would cost approximately 1.188m/- at that price, while one with a face value of 100m/- would cost about 118.8m/-.

The purchase price is important in determining the actual return an investor receives. Although the bond carries a coupon rate of 12.75 per cent, an investor buying above face value should assess the yield to maturity rather than relying on the coupon rate alone.

Mr Mnyagi emphasised the importance of understanding investment fundamentals and choosing opportunities that align with individual financial goals.

He said investment decisions should consider the investor’s objectives, the period funds can remain committed and the level of risk they can afford to take.

The strong demand for the long-term bond highlights the importance of developing a deeper and more diversified capital market that can accommodate investors while supporting the financing needs of the economy.