Government bond market volatile in 2022

THE government bond market saw significant volatility in the past year with a surge in demand, leading to a bidding frenzy and inflated bond prices in the first quarter.

To avert the situation, the Bank of Tanzania (BoT) intervened in the second quarter by lowering coupon rates on all its bonds to lower its cost of borrowing and align with market conditions.

Orbit Securities Company Limited Synopsis show that the Central Bank’s intervention in the government bond market led to a decrease in bond prices.

In a bond auction held in May last year, the yield was 12.36 per cent and the average price stood at a premium of 101.4. However, in a bond auction held in December last year, the yield increased to 12.7 per cent and the price fell to a discount of 98.54.

It is expected that investors will continue to demand high compensation for lending capital to the government this year, resulting in higher yields on government bonds.

Furthermore, last year the corporate bond market experienced a record-breaking year. For the first time in the history of the Dar es Salaam Stock Exchange, three corporate bonds were listed on the market.

This marked a significant milestone in the market and introduced a range of innovative products.

NMB listed the first social bond in East Africa, called ‘JASIRI,’ which supports women-owned SMEs and won the ‘Sustainable Bond of the Year award at the 2022 Global SME Finance Forum.

NBC listed its first bond, ‘Twiga’, on the DSE and it was oversubscribed by 30 per cent.

KCB also issued the first Sukuk, called ‘Fursa Sukuk,’ which was oversubscribed by 10 per cent.

Sukuk are structured to comply with Islamic principles and involve a sharing of risks and returns between the issuer and investors, rather than being debt obligations.

The corporate bond segment is growing in importance on the Dar es Salaam Stock Exchange (DSE). This is a natural progression as financial markets develop, with the government often playing a key role by privatising and listing state-owned enterprises, followed by the development of a government bond market and eventually a corporate bond market. Once established, the financial sector tends to lead in issuing corporate debt.

Issuing bonds can be cheaper and provide longer-term financing and greater flexibility for corporations compared to borrowing from banks.

Bond interest rates are typically fixed and bonds offer more time to pay back debt and the ability to structure debt to meet the needs of different investors.

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