THE 364 day- Treasury bill gained 30 basis points as it closed last week’s auction to a weighted average yield of 3.92 per cent from 3.62 per cent recorded in the preceding auction, this marks the first time since April this year that the 364 day Treasury bill yield increased, though currently trading at a yield below September headline inflation rate of 4 per cent.
However news of the 364 day Treasury bill rising was not the only headliner, the 35 day Treasury bill was subscribed for the first time since its last auction in April this year.
Treasury bill auction summary held on 6th October 2021 On Wednesday 6th October 2021, the Bank of Tanzania offered 72.7bn/- for the 364-day Treasury bill while 3.0bn/- was offered for the 182-day maturity; It also offered TZS 1.0bn/- and 1.7bn/- for 35-day and 91-day maturities respectively.
The weighted average yield increased slightly for the 364-day bill by 30 basis points to 3.92, the 182-day lost 1 basis point to 3.04 per cent, the 91-day bill gained 64 basis points to 2.66 per cent, and the 35-day bill lost 50 basis point to 2.43 per cent. Why are yields rising?
The Monetary Policy Committee of the Bank of Tanzania on 27th July released a public notice to implement a number of measures aiming to provide an increase in credit to the private sector and lower interest rates, between that period and September the 364 day Treasury bill yield lost 45 basis points as the Bank of Tanzania encouraged reallocation of liquidity to the economy through reducing treasury yields, the current rise in treasury bill yields could indicate a shift in policy as lending to the private sector increased to 4.1 per cent in the month of July, the monetary policy tool could have served its purpose.
Treasury bill yields The yield on Treasury bills is generally viewed as the representative money market rate. For this reason Treasury bill interest rates are typically used as the index rate for variable rate financial contracts.
The spread between private money rates and Treasury bill interest rates is used as a measure of the default risk premium on private securities.
During times of economic slowdown, the circulation of Treasury bills and the yields can both be deliberately reduced by the central bank to create liquidity. Example as shown in Figure below, the Bank of Tanzania influences the reduction of yields by reducing the amount of funds accepted in auctions, automatically, diverging the excess liquidity back into the economy.
An Expansionary monetary regime is undertaken by the central bank during times of economic slowdown through a reduction in Treasury bill circulation and reduced yields of the respective bills, this action disincentives investors into channeling their excess liquidity in this sector, thereby boosting cash flows to the stock markets instead, ensuring a boost in the productivity of most companies.
Such a rise in productivity has a positive impact on the GDP and aggregate demand levels in an economy.
It’s through this way investors choose to invest in other securities instead such as stocks, giving an impetus to productivity for most companies, thereby raising the GDP and demand. Equities The DSE equity market bounces back with a bullish performance of 1.37bn/- which was dominated by the banking sector.
CRDB emerged as this week’s trading counter, dominating the market share by 54.86 per cent followed by its counterpart NMB at 41.07 per cent. Price movement was recorded on four domestic traded equities this week.
Top gainers were Jatu, appreciating by 10.61 per cent to 730/- per share and the self-listed DSE ending the week at 1,300/- per share after gaining 8.33 per cent.
Alternatively, SIMBA share value depreciated by 6.54 per cent to 500/- and NICO also dropped by 2.0 per cent to close the week at 245/- per share.
Total market capitalization decreased by 1.15 percent to 16.061tri/- and domestic market capitalization went up by 0.01 per cent to close at 9.482tri/-. The key benchmark indices closed as follows; -
• Tanzania share index (TSI) closed at 3,586.54 points an increase of 0.01 per cent. • All Share Index (DSEI) decreased by 1.15 per cent to close at 1,926.98 points Sector Indices closed as follows; - • Industrial & Allied Index (IA) closed at 5,004.63 points, down by 0.01 per cent.
• Bank, Finance & Investment Index closed at 2,412.11 points, up by 0.11 per cent percent. • Commercial Services Index closed at 2,138.49 points, same as the preceding week.
Outlook The Stock market continues to look promising this year as the Tanzania Share index expanded by 2.92 per cent, opening the year with 3484.76 points gradually inclining to 3,586.54points.
The growing stock market index indicates the investors’ confidence over the good future prospects of economy.
The expansionary policies implemented by the Bank of Tanzania has been considered as an important factor amongst the many forces influencing the stock market performance, actions like reduction of fixed income security yields and lowered lending rates has resulted in capital flight towards the stock exchange.
Interest rate and stock market performance has negative relationship. When the banking institutions offers low lending interest rates in loans, stock markets becomes attractive to investors as this decreases the cost of credit and encourage business investment in the economy. We expect the stock market to maintain its bullish run with reference to the above mentioned reasons.
• Zan Securities is a capital markets and securities authority licensed dealer and a member of the Dar es Salaam Stock Exchange (DSE) and one of the leading stock market dealers with branches in Zanzibar and Tanzania mainland