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First time BoT sells bond at premium

THE country debt market has entered into a new era for the first time in history, where a government security was sold at premium in primary auctions thanks to investors’ increasing appetite.

This was the first time a bond, whether corporate of government, was sold above premium price at primary market since the debt instruments were introduced almost two decade ago.

The history was written during the Wednesday’s 20 years Treasury bond auctioned which registered a highest bid was 100.2457 and the lowest 87.7500.

Orbit Securities Head of Research and Analytics, Imani Muhingo said that the price was pushed up due to stiff competition propelled by debt investors raising appetite.

“The purchase price of the bond was slight above its par value due to increasing appetite for debt securities amid stiff competition,” Mr Muhingo told the Daily News.

However, he said, this was the first time a bond was sold at premium during primary market, but on secondary it’s a common occurrence.

During the auction, the spread between the lowest and highest successful price further tightened to 1.3982 from 3.0408 during the previous 20yrs bond auction, thus lowering the weighted average yield to maturity by 15 basis points (bps) to 15.64 per cent.

The head of research and analytics said investors seemed to scramble for the bond 20-year bond based on its yield and coupon rates offered.

“For the first time in the history of Tanzania’s Treasury primary auctions a Treasury bond was sold at a premium,” Mr Muhingo said.

The 20yrs bond issued during the week attracted an oversubscription of 158 per cent when the Bank of Tanzania (BoT) offered 136bn/- worth of the bond, and the public in return tendered 350.44bn/-.

“Despite a significant appetite,” Mr Muhingo said, “the Bank only accepted 98.6 per cent of the offer, amounting to 134.1bn/-.”

He added the trend was described as a “move to lower the cost of debt to the government and interest rates in the economy”.

According to some debt market analysts if an investor buys a bond at a premium, meaning one pays more than its maturity value, because the bond’s stated interest rate (and therefore its interest payments) is greater than those expected by the current bond market.

It is also possible that a bond investor will have no choice and you either buy the bond at a premium or you don’t buy a bond.


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