Yield curve opens Tanzania to global investors

DAR ES SALAAM: TANZANIA has launched its first Sovereign Yield Curve, a major financial market reform expected to improve government securities pricing, attract domestic and foreign investment and strengthen the country’s position as a competitive investment destination.

The benchmark, introduced by the Bank of Tanzania (BoT) in collaboration with the Ministry of Finance, Capital Markets and Securities Authority (CMSA) and Dar es Salaam Stock Exchange (DSE), provides a transparent reference for pricing government securities across maturities ranging from less than one month to 25 years.

The initiative, which received technical support from the US Treasury Department, is aimed at improving transparency, reducing information gaps and enabling investors to make informed decisions in the capital markets.

Speaking during the launch yesterday, BoT Governor Mr Emmanuel Tutuba said the yield curve represented a significant milestone in Tanzania’s financial sector reforms, particularly as the country seeks to attract more long-term investment.

“The Sovereign Yield Curve is more than a technical benchmark. It will improve transparency, facilitate fair pricing of government securities and enable investors to make informed investment decisions based on reliable market information,” Mr Tutuba said.

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He said the benchmark would also support pricing of corporate bonds, bank lending rates, mortgages and other financial products while strengthening the effectiveness of interest rate-based monetary policy.

The launch comes as Tanzania implements reforms to expand capital markets, including improvements in Treasury bond auction procedures, adoption of a hybrid approach for determining coupon rates and expansion of the non-competitive bidding window to 500m/-.

Mr Tutuba said the country had also fully liberalised its capital account, allowing investors beyond the East African Community (EAC) and Southern African Development Community (SADC) regions to participate in Tanzania’s government securities market.

“We have now achieved full liberalisation of the capital account. This will broaden investment opportunities, attract more foreign capital and support implementation of Tanzania’s Development Vision 2050,” he said.

The government securities market has recorded significant growth since Treasury bonds were introduced in 2002. The value of unmatured government securities has increased from 499bn/- in 2002 to 32.291tri/- this year, while the number of investors has risen from 897 in 2016 to 32,631 currently.

Dar es Salaam Stock Exchange (DSE) Chief Executive Officer Mr Peter Nalitolela described the launch as a landmark achievement that places Tanzania among countries with more developed financial markets.

He said the yield curve would improve pricing efficiency, increase liquidity in the secondary market and provide a benchmark for valuing both public and private debt instruments.

Mr Nalitolela added that the DSE had integrated government bond holdings into its upgraded mobile trading platform, allowing investors to track both the face value and daily market value of their investments.

Tanzania Stock Exchange Brokers Association (TSEBA) Chairman Mr Godfrey Malauri said the initiative had come at the right time as the economy expands and international investors increasingly seek transparent financial markets.

“The yield curve is the language of financial markets. It provides the benchmark for pricing government securities, bank loans, corporate bonds and many other financial products,” he said.

BoT Director of Capital Markets Mr Emmanuel Akaro said the benchmark was developed using internationally recognised methodologies and actual secondary market trading data from the DSE, after eliminating abnormal transactions.

He said the new system would address information asymmetry that has affected efficiency in both primary and secondary government securities markets.