THE market is digesting the direction of treasury yields and general interest rate movement for longer tenures government bonds, after they rose in the last four consecutive auctions.
This follows the consistent rise of Treasury yields in the auctions since mid-this year, and the central bank accepting all bids in the most recent 20 years’ government bond auction.
Alpha Capital Head of Research and Analytics, Imani Muhingo, said, for instance, the last week 25 years Treasury bond marked the fourth consecutive auction with a rising yield.
“The central bank implements a seemingly soft contractionary [monetary] policy to tame inflationary pressures.
“…As the market digests the direction of Treasury yields and general interest rates movement influenced by the central bank,” Mr Muhingo said yesterday through the firm’s financial digest report.
The 20 years Treasury yield has also risen in four consecutive auctions in the last six months.
However, rising yields and other measures including the issuance of repos, tend to raise general interest rates making funds expensive and hence limiting monetary supply.
“The goal is to suppress aggregate demand of goods and services, and consequently suppress general prices,” Mr Muhingo said.
Last week, in the 25 years bond auction, the central bank was seeking to raise 136.54bn/- from the public, in exchange for 12.56 per cent semi-annual coupon payments on the face value, until bullet payment of the principle upon maturity of the bond.
The offer was oversubscribed by 128 per cent to 311.18bn/-.
The subscription was higher than the previous 25 years bond auction which offered a similar value and saw an oversubscription of only 88 per cent.
Vertex International Securities Ahmed Nganya said in the brokerage firm’s weekly market review that the 25-year bond auction results echoed their last week’s prediction as results proved an over-subscription.
“We forecast an increase in yield in the upcoming T-bill auction results [this week],” Mr Nganya said.
Last week the Bank of Tanzania (BoT) accepted 78 per cent more than the offered size, 242.8bn/- leaving on the table 175bn/-.
The bid prices fell in the auction under review, as the market follows the guidance of the central bank, to raise yields.
The lowest bid price dropped from 87/2310 in the previous auction held in October to 70/- in the auction under review. The highest bid also dropped by 80bps, from 101/80 to 101/-.
The minimum successful price accepted by the central bank also dropped by three shillings to 96/- compared to 99/- in the previous auction.
Orbit Securities said in its weekly market synopsis that the trend of rising yields can have various impacts on financial markets and the economy.
“Higher bond yields can lead to increased borrowing costs for governments, corporations and other borrowers, as well as lower prices for existing bonds.
“They may also decrease demand for bond-related investments and increase the attractiveness of stocks to investors,” Orbit report said.
While, the weighted average coupon yield gained 17.96bps compared to the yield in the last 25 years’ bond auction. The weighted average coupon yield in the auction under review was 12.7463 per cent compared to 12.5627 per cent in the previous auction.
Treasury bond yields are considered benchmarks of all returns in an economy, from a comparable maturity of investment since when yields rise, investors demand higher returns from every other investment. Treasury yields are the foundation of internal rates of return.
