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25-year bond breaks new price, oversubscription records

25-year bond breaks new price, oversubscription records

THE 25 years Treasury bond has been heavily oversubscribed by five times at the expense of the yields while pushing up prices at new high to reflect analysts’ predictions.

The central bank reopened the government paper Wednesday, which was auctioned first time last April, figuring to raise 133bn/- at 15.95 per cent yields.

Zan Securities Chief Executive Officer, Raphael Masumbuko said yesterday that the oversubscription pushed up cut off price to 117/31—a new high to suppress down average yield to 13.8179 per cent—a new low. 

“The auction [results] seem to have caught a lot (of investors) by surprise…

“We see this having a knock on effect for the respective paper in the secondary market,” Mr Masumbuko said through a statement.

The central bank accepted only 54 bids out of 1136 received, equivalent to a 4.75 per cent success rate.

The bond was oversubscribed by 393 per cent to 656.04bn/- and at the end of the auction the Bank of Tanzania (BoT) accepted 133bn/-.

“We are going to see more downward pressure on yields on forthcoming auctions,” the Zan CEO said.

The auction was the 5th reopening of the T-bond since the central bank began to reissue last November and seems to pay off in cutting yield rates.

“There has been downward pressure on yields, much to the credit of accommodative monetary policy by the BoT to re-allocate the excess liquidity back to the economy to foster economic growth,” Mr Masumbuko said.

According to BoT Monthly Economic Review, loan to the private sector grew by 7.8 per cent last November compared to 5.6 per cent of October last year.

On Tuesday, debt analysts had projected that the yields for the 25-year T-bond were bound to go up, warranting the market to experience humped curve trend.

Debt Market Analyst, Imani Muhingo said the market expects a significant oversubscription similar previous long-term auctions.

“The appetite for these papers is still high, as the yields are still higher compared to other East African markets.

“The prices are also expected to skyrocket, considering it goes by a dirty price since it’s a reopening of long tenure bond issued in April 2021,” Mr Muhingo said.

Vertex Securities said in its weekly market review that the bond yields are expected to go down amid high oversubscription.

“We expect yields to decrease in the [today’s] auction for a 25–year bond with subscriptions reaching high levels,” Vertex said.

The reopened price for the 25-year T-bond sold on Wednesday comprised the accrued interest of 3/9766 per 100/-, meaning that based on the yield to maturity of 16.3381 per cent, the clean price is 97/6771 while the dirty price is 101/6537.

The humped curve may form as a result of a negative butterfly, or a non-parallel shift in the yield curve where long and short-term yields fall more than an intermediate one.

“We have already seen a sharp fall in a 20-year paper yields currently trading at 13.8per cent just 30 basis points above the 15-year Treasury bond coupon,” Zan said in the report Tuesday.

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