Oversubscription as investors go for long-term government securities

Dar es Salaam. The 25-year Treasury bond was oversubscribed by more than fourfold yesterday as market dealers associate the performance with high appetite for the longer term securities.

According to the auction results issued by the Bank of Tanzania (BoT), some 1,427 bids worth Sh636.59 billion in all were tendered against the central bank’s offer of Sh133.45 billion.

The amount is 4.7 times the offered amount. However, BoT accepted Sh182.34 billion from 384 investors. Experts said the trend indicates appetite and availability of liquidity in the country’s financial market.

“One key thing is that the government accepted Sh182.34 billion, more than its offer - and that means the government continues to push liquidity to the private sector,” said the capital markets manager for Vertex International Securities Ltd, Mr Ahmed Nganya.

The highest bid was at a premium of 104/100 while the lowest bid was at 90/100. The minimum successful price by the central bank was at 102/100.

A person would buy a bond at a premium (pay more than its maturity value) because the bond’s stated interest rate/interest payments were greater than those expected by the current bond market.

“It means the appetite for the 25 Year bond is too high and investors are willing to pay premium due to its coupon of 15.95 percent, which is huge,” said Mr Nganya.

However, data showed that the continued increasing demand for the long-term securities has impacted the maturity coupon yields from the bond. 25-year bond’s yield to maturity on Wednesday tabled at 15.48 percent a decrease from 15.85 percent at the last auction on August 4, 2021.

The Zan Securities Limited chief executive officer, Mr Raphael Masumbuko, said yields have fallen to historical lows to reflect the inverse relation with prices - although there have been pockets of strength as investors search for yields. “We believe the outlook for economic growth in the current quarter of the year is strong, and expect intermediate- and long-term Treasury rates to move modestly higher,” he said.

When the government announced the issuance of the 25-year bond, BoT stated that introduction of the security is a continuation of government efforts to lengthen the maturity profile of domestic debt, develop the country’s financial markets, raise funds for long-term development projects - and provide an anchor for other market instruments such as mortgage financing and corporate bonds.