TANZANIA: TANZANIA’S fixed income market, particularly within the Treasury Bonds (T-bonds) segment, exhibited varied performance in July 2024 across both the primary and secondary markets.
The month’s activity provided significant insights into investor behaviour, demand trends and pricing mechanisms.
In the primary market, July 2024 saw three major T-bond auctions, each offering different maturities and yields. The 20-year T-bond, with a yield of 15.49 per cent, showcased strong investor demand.
The auction, held on July 31st, 2024, resulted in a weighted average yield-to-maturity of 15.1683 per cent and a weighted average coupon yield of 15.1440 per cent.
The total amount tendered reached 489.417bn/-, with successful bids amounting to 431.858bn/-. This healthy demand for long-term securities reflects investor expectations for higher returns.
In stark contrast, the 5-year T-bond auction held on July 17th, 2024, failed to secure any successful bids. Despite the total tendered amount of 47.763bn/-, the auction ended with a weighted average yield-to-maturity and coupon yield of zero per cent.
This suggests a lack of investor interest at the offered rates or a mismatch between investor expectations and government pricing, resulting in the auction being undersubscribed.
The 15-year T-bond, with a yield of 13.5 per cent, conducted on July 3rd, 2024, experienced moderate success. With a weighted average price of 93.1934, the auction achieved a weighted average yield-to-maturity of 15.0516 per cent and a coupon yield of 14.4860 per cent. Out of the 240.486bn/- tendered, 184.0bn/- were successfully bid.
The lower weighted average price indicates that investors sought a discount, due to their outlook on medium-term economic conditions.
The secondary market in July 2024 displayed mixed sentiment, with significant variation in turnover and deal activity across different bond maturities.
The 25-year bond with a 15.95 per cent yield emerged as the most prominent, trading at an average price of 111 per cent and yielding 14.81 per cent. This bond dominated the market, accounting for 42.41 per cent of the total T-bonds traded, underscoring its appeal to investors seeking long-term security with attractive returns.
Following closely, the 20-year bond with a 15.49 per cent yield saw substantial turnover, amounting to 68.71m/-, and traded at a price of 104 per cent, yielding 15.36 per cent. This indicates a strong demand for long-duration bonds, as a hedge against inflation and economic uncertainty.
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On the other hand, shorter-term bonds, such as the 5-year bond with a 9.18 per cent yield, showed no trading activity, reflecting a clear investor preference for longer-term securities, especially in an environment where shorter-term yields are less competitive.
Overall, the secondary market recorded a total turnover of 221.94m/- across 295 deals, with the bulk of the activity concentrated in the 25-year and 20-year tenors.
The negligible turnover in shorter maturities, such as the 2-year bonds, further highlights the shift in investor preference toward longer-duration instruments, driven by the pursuit of higher yields and the desire for stability in uncertain economic times.
In essence, the fixed income market in Tanzania for July 2024 underscores a strong investor preference for long-term T-bonds, driven by the search for higher yields amidst expectations of economic shifts.
The primary market saw varied outcomes, with robust demand for longer-term bonds and a complete lack of interest in the shorter 5-year bond.
In the secondary market, trading was dominated by longer-term bonds, reflecting a strategic move by investors to prioritise security and higher returns over liquidity in a potentially volatile economic environment.
These market dynamics suggest that investors are positioning themselves to maximise returns, even at the expense of shorter-term liquidity, signalling confidence in long-term investments as a protective strategy against future uncertainties.