THE prices of higher-end tenor paper, the 25-year Treasury bond, have been exhibiting a downward trajectory in the market recently.
Despite experiencing an oversubscription of 33 per cent to 239.95bn/- during the last Wednesday’s auction, the inverse relationship between bond prices and yields has resulted in a notable increase in yields.
The Exodus Advisory, Chief Executive Officer, Mr Ramadhan Kagwandi, said the last week’s results were evidenced by the ceiling bid reaching 100/-, while the average price settled at 95/09, causing yields to maturity to soar by 20 basis points to 13.233 per cent from 13.0086 per cent of the previous auction.
“The surge in yields can be attributed to investor sentiments influenced by the allure of alternative and potentially more lucrative investment opportunities beyond the fixed-income market,” Mr Kagwandi told Business Standard over the weekend. Hence, recently equities and mutual funds, in particular, have garnered considerable attention from investors seeking higher returns.
Moreover, the coupon rate for the 25-year bond stands at 12.56 per cent, and in the last week’s auction some 59.9bn/- was left on the table, reflecting strong demand however at the expense of lower prices.
“These dynamics suggest that investors in the Tanzanian market are currently favouring alternative investment avenues, potentially driven by the pursuit of higher returns and the perception of greater opportunities outside the fixed-income sector,” Exodus CEO said.
However, Alpha Capital Head of Research and Financial Analytics Imani Muhingo said that it seems the central bank is consistent with the monetary policy committee in regards to the mild reduction of money supply, considering that credit growth to the private sector is twice the target, as a result, the market sees a consistent rise of Treasury yields, especially for long term tenors.
“Appetite of the tenors is still apparent, albeit waning relative to last year, mostly because of the high frequency of auctions for long-term tenors as the government extends its debt maturity profile,” Mr Muhingo said.
Though, other debt analysts had it that the auction oversubscription suggests there is strong demand for this bond in the market. Orbit Securities Investment Analyst Ammi Julian said that the implication of weighted average yield-to-maturity of 13.2330 per cent suggests that investors demanded a higher return for taking on the risk of investing in this bond.
“This could indicate that interest rates in the market are expected to rise,” Mr Julian said.
On the other hand, the market sentiment on the oversubscription of the bond auction by 33 per cent could suggest that investors are optimistic about the prospects of the Tanzanian economy.
“This could lead to increased investment and economic growth,” he said warning it might increase the overall government debt burden.
Zan Securities Advisory and Research Manager Isaac Lubeja said it has been quite the norm for the 25-year bond being oversubscribed, receiving a high number of bids and tendered amounts indicating more demand in this maturity.
“This has made it a favourite hub for the transmission of monetary policy by the central bank,” Mr Lubeja said adding that the central bank accepted more than the amount initially offered in the last five auctions of the 25year bonds in a bid to remove excess liquidity as a measure to control inflation.
“With the annual inflation rate for April dropping to 4.3 per cent from March’s 4.7 per cent we could see a more lenient monetary policy,” Mr Isaac further said.
Average yields have been increasing over the last four auctions gaining cumulative 78.5 basis points from the average yield last July. Moreover, the price floor gradually reached 93/53 from 100/- in the same period.
This continues to reflect lessened monetary policy accommodation by the central bank to control inflation.
