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Bonds yields expose strong Dar es Salaam economy

THE yields on longerterm government debt climbed above those on shorterterm indicate a sound economy amid continuous upbeat outlook. This shows that investors are expecting no immediate pullback in growth and inflation.

The 10, 15 and 20 year bond yields are over 15 per cent while two and five years are between 8.0 and 13 per cents in the last three years.

The yield curves were closely in the first half of 2017 where the five-year bond touches shoulders with 10 and 15 years debt a sign of economy heading into recession.

However, the economy managed to pull out of the possible key recession alarm in the third quarter of 2017 and the yield gaps returns to normal after central bank cut key rates.

Orbit Securities, Market Analyst, Imani Muhingo, said the longer-term yields are above shorter-term ones showed low risk of uncertainty in the future.

“The economy is on the right path…and this shows that it’s unlikely to face recession in the [near] future…,” Mr Muhingo told the ‘Daily News’ yesterday.

Should the debt market depict inverted curve, when long-term rates are lower than short-term rates, suggests the economy expect a recession, which will reduce interest rates in the near- to -mid-term.

The yield curve gaps are barometer of economic expectations warranting and encouraging investors to determine what risks to take.

The Bank of Tanzania (BoT) Manager Financial Markets, Mr Lameck Kakulu, said for a long period inflation and exchange rates have been trading at suitable range base.

“Tanzania inflation and exchange rates have for a long time remained stable, an indication that there is microeconomic stability,” Mr Kakulu said.

The country’s inflation has remained below 5.0 per cent in the last two years while exchange rates are around 2,300/- a US dollars indicating stable macroeconomic stance.

Bank of Tanzania, Director of Economic Research and Policy, Dr Suleiman Misango said longer bonds having higher interest rates than short maturities are a normal phenomenon.

Simply, this reflects ‘time value of money’. We do not see an inverted yield curve.

“There is no issue because the yield curve is gently upward sloping,” Dr Misango told the ‘Daily News’ yesterday. The director said people lending money for 20 years will always be compensated more than those investing for two years.

The TIB Development Bank Lead Economist, Dr Hildebrand Shayo, said this means investors have confidence in the future performance of the country’s economy.

“This is because investing time is now viewed as important part of today’s demand and ground for future supply,” Dr Shayo said yesterday.

The economist said when interest rate and bond have an inverse relationship thus one goes up the other goes down has negative impact on the economy.

He said Tanzania was “unlikely to get into recession” because looking at the market and measure being taken there is a confidence of investors in the future and is pushing appetite for investors.

“The yield curve as a measure of how confident investors are in the economy,” Dr Shayo said. In normal times, investors demand higher interest rates in return for tying their money for longer period.

When they get nervous they are willing to accept lower rates in return for their unrivaled safety bond offer. “In our case we are strong base and there are no such threats,” he said.

Mr Kakulu said there is huge avenue for ‘wananchi’ to invest in government securities to accrue immense benefits due to high yield rates offered which are market determined.

While Mr Muhingo said in the recently months they are noticing an increase of individual participation on the debt market.

The total debt market in the country was 10.7tri/- of which 10.5tri/- are government securities.

In recently weeks US yields on longer-term US government debt climbed above those on shorter-term Treasury’s—a sign investors expect no immediate pullback in growth and inflation.

THE deposits for banking institutions ...


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