Government bonds cool as equities seek balance

TANZANIA’S financial markets are moving through a period of recalibration, with government securities drawing deep pools of liquidity even as the equity market shows signs of selective recovery.

The Bank of Tanzania has announced a 20-year bond auction set for tomorrow, with a coupon rate of 14 per cent. This represents a step down from the 15.25 per cent set in June and below the 14.5 per cent seen on the most recent 15-year paper.

Tanzania Securities Weekly Market Wrap Up report said the shift points to a recalibration in the long end of the curve and raises the possibility of upward pressure on yields once demand meets supply.

“Such adjustments signal the likelihood of upward pressure on 20-year bond yields as the market recalibrates. “Bond market activity intensified, underscoring heightened investor interest, whereas equity trading volumes softened considerably, reflecting a cautious sentiment in risk assets,” Tanzania Securities said.

Alpha Capital Head of Business Development and Customer Service, Mr Geofrey Kamugisha described the curve as showing a “noticeable hump in the midtenors,” with the 91- and 182-day yields higher than both the shortest and the longest bills.

“Yields continued to compress, reinforcing the broader narrative of declining rates,” Mr Kamugisha said adding that such a structure reflects both investor expectations of lower rates ahead and the liquidity needs of financial institutions.

He said a pattern has appeared in recent auctions is the T-Bills yield curve has developed a noticeable hump in the midtenors, with 91- and 182-day yields trading above both the shortest and longest bills.

“Such a curve structure often reflects either of two things. First, it captures investor expectations that policy rates are likely to decline further in the coming quarters,” Mr Kamugisha said.

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He added this incentivises demand at the 364-day point, where investors seek to lock in current rates before they fall further, compressing yields at the long end. Second, it reflects liquidity preferences: Money market funds, banks and corporates remain eager to hold ultra-short paper like the 35-day bills to satisfy liquidity coverage requirements, pushing those yields lower as well.

“The relative weakness in demand for the 91- and 182-day maturities forces the government to price those tenors higher, producing the inverted hump observed,” he said. On secondary bond market activity slowed, recording 63.99bn/- in trades from 125 deals last Wednesday compared to 257.52bn/- a week earlier.

This slowdown showed a dip in activity compared to prior sessions, with investors positioning more for fresh issuance than for trading existing holdings.

Additionally, the last week’s Treasury bill auction underscored the intensity of liquidity in the system.

The 91-day paper drew nearly six times its offer, while the 182-day paper was subscribed more than fivefold. The largest tenor, 364 days, received 136.87bn/- in bids against a 75bn/- offer, with the central bank accepting 76.97bn/- Zan Securities Advisory and Research Manager Isaac Lubeja said there was “satisfactory demand for all the maturities, as they were all highly subscribed.” The 364-day bill cleared at a weighted average yield of 6.6566 per cent, a fall of 25.9 basis points from the previous auction’s 6.9156 per cent.

This marks the third consecutive decline. Mr Lubeja noted that “the 364-day bill recorded a decline in its weighted average yield” and added that this has been part of a continuous downward trend.

On the equities side, the market offered mixed signals. The All-Share Index (DSEI) slipped to 2,579.37 points, while the Tanzania Share Index (TSI) eased to 5,420.04 points.

Market capitalisation stood at 22.11tri/-, with the domestic portion at 14.34tri/- recorded at the end of last Friday. Equity turnover nearly doubled to 17.77bn/- from 9.38bn/-, driven largely by banking counters. CRDB alone accounted for 10.58bn/- in trades, nearly 60 per cent of all activity, while NMB generated 3.53bn/- and KCB 1.7bn/-.

Alpha Capital said “CRDB once again dominated flows,” while Vertex International Securities described it as “a top market mover this week.” The order book dynamics also began to shift.

Last Tuesday, CRDB closed with over 231,000 shares in outstanding bids and no offers, reversing recent weeks of heavy sell pressure. Mr Kamugisha said that “momentum is tilting back toward accumulation,” with buyers reemerging at levels they view as fair.

The week was not without volatility. NICO surged by more than 40 per cent, while DSE jumped 21 per cent and TPCC rose nearly 9 per cent.

At the same time, TBL lost 2.44 per cent, TCC shed 1.93 per cent and CRDB slipped marginally despite its dominance in turnover.

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Zan Securities said, “We expect a continued consolidation period in the equity prices in banking and a handful of industrial names,” noting that the upcoming 20-year bond auction will likely shape investor flows between asset classes.

Together, the trends suggest a market navigating two opposing forces. Bonds continue to compress yields as liquidity remains heavy, while equities are searching for balance between caution and opportunity. Investors are being forced to weigh the safe income streams of government securities against the selective but potentially rewarding opportunities in listed companies.