June, the best month to invest in long-tenure bonds

TANZANIA: JUNE is an important month for those interested in investing in government securities. Two major bond auctions are scheduled, offering promising opportunities for investors.

Tomorrow, the Bank of Tanzania (BoT) will reissue a 20-year bond with an annual coupon rate of 15.49 per cent but the highlight of the month will be on June 19th, when investors can bid on a reopened 25-year government bond with a fixed coupon rate of 15.95 per cent.

A 15 per cent annual return is highly appealing for anyone looking to protect their savings from inflation. With such a return, you can expect to double your investment in about five years.

As the demand for these bonds rises, competition among investors becomes fierce. Here are some steps to ensure your participation is successful: First, it’s essential to understand the auction process.

In government bond auctions, you can submit either competitive or non-competitive bids.

Competitive bids allow you to specify the yield you want. If your bid is among the highest, you secure the bonds. However, there’s a risk of not getting the bonds if your bid is outbid by others.

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Noncompetitive bids, on the other hand, involve accepting the yield determined by the auction. This guarantees you get the bonds, making it a safer choice for those who don’t want to speculate on yields.

Next, strategise based on market conditions and personal investment goals. Gather data from previous auctions, such as bid-to-cover ratios, average yields, and tender sizes.

Analysing this information can help you spot market patterns or trends. Additionally, compare recent auction yields with current market yields for bonds with similar maturities.

This comparison can provide insights into investor demand and market sentiment. By following these steps, you can better position yourself to make informed decisions and increase your chances of securing bonds at favourable rates.

Moving on to how the equity market performed throughout the week, there was a dramatic decrease in market turnover, which plummeted by 83 per cent, from 6.7 bn/- (USD 2.6 million) to 1.2bn/- (USD 443,381).

Trading volume also experienced a sharp decline, falling by 58 per cent to one million traded shares. Despite the turnover drop, the total market capitalisation rose by 0.75 per cent to 17.2tri/- (USD 6.62 billion).

The domestic market capitalisation showed a modest increase of 0.15 per cent to 11.9tri/- (USD 4.56 billion).

The All Share Index (DSEI) gained 15.33 points, closing at 2,066.32, while the Tanzania Share Index (TSI) saw an increase of 6.85 points, reaching 4,486.39. Among the top gainers, DSE emerged as the leading performer with a 9.7 per cent surge in its share price to 2,040/-, driven by investor anticipation of the company’s upcoming dividend announcement.

TICL, a closed-end fund, experienced a 2.7 per cent rise, maintaining a range between 185/- and 200/-. CRDB rebounded by 2.0 per cent, closing at 510/-, while TOL increased by 1.4 per cent to 700/-.

NMB continued its upward trend, reaching an all-time high of 5,300/- with a 0.95 per cent increase. Conversely, NICOL saw a decline of 1.25 per cent, trading between 790/- and 800/-.

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Twiga experienced a 4.7 per cent drop, and DCB suffered the largest decline, plummeting by 15.4 per cent to a record low of 110/-.

Market activity was dominated by CRDB and NMB, with CRDB accounting for 55 per cent of traded shares and NMB contributing to 53.8 per cent of the total turnover. Domestic investors remained the primary participants, making up over 85 per cent of the market activity.