Bonds draw strong investor interest
DAR ES SALAAM: THE bond market is seeing robust investor interest as yields decline and liquidity remains abundant, reflecting growing confidence in financial stability.
This confidence was evident in the latest 10-year government bond auction, which attracted bids nearly four times the amount on offer.
The strong demand helped push the weighted average yield sharply lower in just a few months, a reflection of the central bank’s active management of long-term securities and accommodative monetary policy.
Alpha Capital Head of Business Development and Customer Service Mr Geofrey Kamugisha told the ‘Daily News’ on Sunday that investors appear willing to commit capital despite lower returns, signalling trust that liquidity will remain ample in the near term.
“This…confirms the central bank’s commitment to maintaining a low-yield environment as part of its broader monetary easing stance,” Mr Kamugisha said.
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Amid this demand, auction data of last Wednesday showed that the weighted average yield for the 10-year bond dropped sharply by 129 basis points to 12.45 per cent from 13.74 per cent in July, reflecting a rapid decline in borrowing costs.
Market participants attribute the shift to the central bank’s active management of long-term securities, accommodative monetary policy and a stable macroeconomic environment, which together are encouraging investors to commit funds despite lower returns.
Last week, the central bank reopened its 10-year Treasury bond, carrying a 13.5 per cent coupon. The bond attracted 543.7bn/- in bids against an offered 146.48bn/-, marking an oversubscription of nearly four times. Yet, BoT accepted only 124.31bn/-.
“The results were telling and signalling confidence in liquidity conditions and little urgency to absorb excess cash,” he said.
The supporting data from BoT’s September 2025 Monthly Economic Review adds depth to the picture. The central bank successfully aligned the 7-day interbank rate closer to its Central Bank Rate (CBR) of 5.75 per cent, with market rates fluctuating between 3.75 and 7.75 per cent during quarter three.
“The July CBR cut from 6.0 per cent was underpinned by a stable inflation outlook, moderate global oil prices and adequate domestic food supply, conditions that continue to justify accommodative policy,” Mr Kamugisha said.
BoT’s liquidity operations, reverse repos and selective injections, have stabilised interbank conditions and anchored short-term funding costs.
Meanwhile, the interbank foreign exchange market (IFEM) remains well supplied.
In August, total IFEM transactions reached 101.5 million US dollars, down from 162.5 million US dollars in July, as banks accounted for over 80 per cent of total trades. “In essence, the current financial landscape is characterised by strong liquidity, falling rates and selective risk-taking.
“We see investors recalibrating portfolios, rotating from fixed income, where returns have compressed, toward equities, where valuations remain compelling, but volatility has risen,” he said.
The continued oversubscription of long-term bonds show trust in macroeconomic stability, while the resilience of the equity market Amid rate shifts signals growing sophistication among investors.
