According to a public notice ahead of the auction, the central banks seeks to raise 25bn/- at an offer of 9.18 per cent rate of return. But analysts predict that investors would bid at higher rate reflecting the flying inflation that last month stood at 19.8 per cent.
For example, the two-year bond auction conducted recently saw investors bidding 43.8bn/- but at higher rates, compelling the bank to hike the yields to 17.85 per cent from 7.82 per cent. Despite the effort, the bank managed to raise only 10bn/- against the tender pegged at 35bn/-.
“After poor performance and even cancellation of recent five-year bonds last year, it will be interesting to see how investors approach another five year function,” stated the Standard Chartered Bank daily commentary. It is believed, according to bank report that the rejected bids were on the back of prices sought by investors being too low.
The Tanzania Securities Limited (TSL) Chief Executive Officer Mr Moremi Marwa said after the completion of tax obligations for most investors on fixed income securities, there is anticipation of positive trading of the five year bond’s auction on Wednesday. He said the oversubscription of the twelve month treasury bills auction conducted last week could not be used as criteria for the five year bond but explained certain investors’ optimism for the economic hardship to ease in the near future.
Tight liquidity measures deployed by the central bank few months back explain partly the recently poor performing government securities. But since last week, the bank started to ease the tight liquidity stance adopted for few months back. In the last half of last year, the central bank cancelled several bonds auctions including; the two for seven years and one for two-years--over disagreement with bidding investors who offered low coupon rates while a number of bonds had been undersubscribed.
Over 60 per cent of the buyers of long term maturities are commercial banks, with only five per cent as retail investors. Others are pension funds, insurance companies and a few micro-finance institutions.