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Treasury bonds yield rates fall to historical low

Treasury bonds yield rates fall to historical low

The Treasury bond yields have fallen to a historical low reflecting the inverse relationship with price.

The bonds, which became debt investors’ darling instruments over the year, saw rising demand hence pushing up prices at the expense of coupon and yield to maturing rates.

The longer tenure bonds—15, 20 and 25 years—average yield have dropped to between 13.4 per cent and 14.9 per cent compared to between 13.5 and 15 per cent in the previous year.

The prices also have climbed from discount to premium and are not seen to decelerate in near future.

Zan Securities said in its weekly market wrap-ups that the fixed income market trades continue to be high and they expected it to continue that way as the market approach the end of the year.

“So far this year, fixed income returns have been modest; yields have fallen to historical lows to reflect the inverse relation with prices,” Zan said on Monday.

The report showed that the recent oversubscription of the 20-year bond will continue to put downward pressure on the long end of the yield curve.

“We see this having an effect on the 15-year Treasury bond as it’s the next available attractive coupon,” Zan said.

The report also said with the 15 year Treasury bond oversubscribing for the first time this year in its last auction shows a sign of investors competing for fixed income yields as the central bank continues to employ accommodative monetary policy to increase the money supply and reduce lending rates.

The 15-year bond that was oversubscribed for the first time this year saw the prices climb to 103/9 to push down yields to 13.4 per cent.

Also, the 20 years bond which was the first to be reopened was heavily subscribed to 661bn/- compared to 139bn/- on the table.

The oversubscription pushed down the weighted average yield to maturity to 14.74 per cent quite lower than the bonds coupon rate of 15.49 per cent.

Vertex International Securities said the 20–year bond auction results shocked investors as they came out contrary to many expectations.

“However, we think the level of pricing is reasonable as the [Bank of Tanzania] BoT reopened bond,” Vertex said in its weekly market review adding:

“We do not see much change in yields in the [tomorrow] auction for Treasury bills”.

In the secondary market, the value of bonds traded slightly increased by 0.23 per cent to 37.9bn/-from 37.81bn/-recorded last week.

“On a year-to-date basis the yield curve has sloped downwards in the long end of the curve as long tenure yields continue to fall. We expect more trading activity in the secondary market next week as there is no Treasury bond primary auction,” Zan Securities said.

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