Investors pour into 25-year bond as yields slide

DAR ES SALAAM: INVESTORS piled into 25- year Treasury bond auction, sending demand more than six times above the amount offered and pushing yields lower as excess liquidity continues to chase government securities.

The Bank of Tanzania (BoT) received bids worth 1.462tri/- for the 243.050bn/- Treasury bond last Wednesday, representing a subscription rate of 601.59 per cent. The central bank accepted bids worth 202.445bn/-, leaving the remaining offers unallocated after maintaining a firm stance on pricing.

Zan Securities Advisory and Research Manager Isaac Lubeja said yesterday that the auction marked the second issuance of the 25- year Treasury bond with the BoT increasing the offer size from 187.240bn/- during the February auction to 243.050bn/- in the latest sale.

“This massive pool of stranded institutional liquidity is expected to aggressively enter the secondary market to hunt for medium- to longterm government papers.

“Consequently, because investors are already tightly holding onto high-yielding assets, this surging demand will drive bond prices higher and sustain the long-term downward trend in weighted average yields across the curve,” Mr Lubeja said in the firm’s weekly market wrap up.

The minimum successful price increased to 109/2979, up from 109/0002 during the previous issuance. Also, investor demand pushed the weighted average yield down by 10.56 basis points to 11.8886 per cent from 11.9942 per cent in the previous issuance, extending the downward trend in yields across the market.

The acceptance rate stood at 13.85 per cent of total bids received. The BoT absorbed all 146.308bn/- submitted through non-competitive bids, while accepting 100.022bn/- from competitive bidders out of 1.315tri/- tendered.

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The bond market performance followed a week of strong activity across the capital markets, with equity turnover at the Dar es Salaam Stock Exchange (DSE) surging to 185bn/- from 47.4bn/- in the previous week.

NMB Bank dominated equity trading, accounting for 91.98 per cent of weekly turnover with transactions valued at 170.22bn/-, while CRDB Bank contributed 6.31 per cent or 11.68bn/-. The two banking stocks together accounted for more than 98 per cent of market turnover.

Foreign investors, however, were net sellers during the week, with net outflows widening by 622.31 per cent to negative 87.445bn/- from negative 12.106bn/- previously.

The shift in investor positioning also extended into the secondary bond market, where trading turnover declined to 154.94bn/- across 76 deals from 173.661bn/- in the previous period.

Medium and longterm government securities dominated trading activity. The 15-year 13.5 per cent Treasury bond was the most actively traded paper, recording 60bn/- across 21 deals at a weighted average yield of 10.65 per cent.