TANZANIA: THE impending 25-year Treasury bond auction, slated for today is set to include the reopening of the bond that was first issued on August 2021.
According to Synopsis from Orbit Securities, the government is seeking to raise 149.92bn/-. A recent auction conducted by the Bank of Tanzania (BoT) was markedly successful, securing an impressive 250.6bn/-against a target of 436bn/-.
The Orbit report said further that the robust demand for the reissued bonds with tenures of 20 and 25 years is a testament to the confidence retail investors place in these securities.
The last auction broke records for the fiscal year in terms of bid submissions, attracting 1,278 bids, out of which 684 were successful, with an average weighted price of 101.35.
The floor for successful bids was set at 99.0000, leading to an overall weighted average yield to maturity of 16.79 per cent.
The report said the bidto-cover ratio, a key indicator of market appetite and confidence, has exhibited an increasing trajectory.
It escalated from 1.7 during the auction of 25-year bonds in the preceding August and momentarily declined to 0.54 in a subsequent 20-year bond auction in November, but rebounded to 2.24 in December.
Following the reopening, this ratio advanced further, recording 2.33 and 2.9 in the successive auctions for 20- year bonds and the most recent one, correspondingly.
A bid-to-cover ratio surpassing 2.0 signifies strong market demand for the bonds being auctioned.
For instance, a ratio of 2.0 indicates that the total bids placed were twice the volume of securities on offer.
Such robust demand is generally interpreted as a bullish indicator by market participants, implying a heightened investor interest in the securities.
With the rising demand, competition among investors to place successful bids intensifies. In crafting your approach to the bond market, assembling a comprehensive dashboard of key economic indicators is recommended.
This should encompass the inflation rate, as disclosed by the National Bureau of Statistics, essential policy rates issued by the central bank and a particular emphasis on the 7-day Interbank Cash Market rate, which the BoT publishes.
Analysis of the government’s fiscal planning is also paramount, especially to gauge the magnitude of borrowing within the domestic market.
For the fiscal year 2023/24, the government’s intention to acquire approximately 5.4tri/- via internal loans is noteworthy.
To date, it has successfully procured 3.9 trillion Tanzanian Shillings from local funding sources, which is inclusive of both treasury bonds and bills.
With yields hovering around 16 per cent and inflation stable near 3 per cent, the landscape appears favourable for fixed-income investments.
Nonetheless, it is essential to recognise that the intensifying demand could prompt a shift in this scenario.
An uptick in speculative bidding by investors might drive a contraction in yields as the market recalibrates to this evolved bidding climate.
