High appetite for long-term securities shown in auction
The headquarters of the Bank of Tanzania in Dar es Salaam. During Tuesday’s auction of the long-term government debt securities, investors showed a high appetite that resulting in an oversubscription for the 20-year Treasury bond by 198 percent. PHOTO | FILE
What you need to know:
- The central bank wanted to raise Sh139.5 billion but investors responded by tendering 686 bids valued at Sh416.2 billion, an oversubscription by 198 percent
Dar es Salaam. Investor appetite for long-term government securities remains positive, as a recent Bank of Tanzania (BoT) auction for the 20-year Treasury bond was oversubscribed by a whopping 198 percent.
As the result, the strong demand has pushed the minimum successful price for the assets by 0.07 percent to 100/100 from 99.93/100 which was the successful price for the bonds in the previous auction, according to BoT’s auction results.
On Tuesday this week the central bank sought to raise Sh139.5 billion, but investors responded with 686 bids valued at Sh416.2 billion.
At the end of the auction the bank accepted only 380 bids valued at Sh257.12 billion. The unsuccessful bids were rejected for being below the accepted minimum price set by the central bank.
The remaining liquidity in the market will be returned to investors, who would either participate in the secondary market or invest in other business avenues.
Vertex International Securities’s Investment manager Ahmed Nganya said the 20-year bond was oversubscribed by huge margins as expected due to investor’s increased appetite for long term bonds.
He said that strong demand was what attributed to the increase in the minimum successful price while the weighted average yield to maturity shrunk slightly to 15.4 percent from 15.41 percent recorded in the previous auction.
“Ironically, the Weighted Average Price decreased slightly to 100.41 percent indicating that most bids were closer to the Lowest bid/100 than Highest bid/100,” he said.
Mr Nganya added, “We expect strong demand for this bond in the secondary market in the coming weeks,”
The government raises funds through the 20 years Treasury bonds and other debt instruments to fund the long term projects that will start generating income before the instrument matures.
Some of the long-term infrastructural projects that benefit from the funds include hydropower, roads, railways, bridges, ports, airports as well as social services like hospitals and schools.
It’s expected that the implementation of the projects would stimulate business growth, contribute to improved living standards and hence making the government to collect more revenue.
