What a 25-year Treasury bond means

What you need to know:

  • The Bank of Tanzania (BoT) sells bonds of different maturities up to 20 years, and the new bond will be included in the list of existing government securities.
  • Apart from being a source for the longer-term financing, the bond will provide another opportunity for the durable investment whose demand has been increasing in the market.

The government is targeting long-term financing of its development projects with the introduction of the 25-year bond which is expected to hit the financial market next month.

The Bank of Tanzania (BoT) sells bonds of different maturities up to 20 years, and the new bond will be included in the list of existing government securities.

Apart from being a source for the longer-term financing, the bond will provide another opportunity for the durable investment whose demand has been increasing in the market.

“We have been experiencing a continuous oversubscription of the 20-year bond, and that means there is huge demand for bonds with longer maturities,” said Mr Raphael Masumbuko, chief executive officer of brokerage firm Zan Securities.

In the latest auction of the 20-year bond on February 10, this year, the Bank of Tanzania intended to raise Sh136 billion, but investors tendered Sh350.3 billion.

However, the central bank accepted Sh249.99 billion which is more than the amount offered. “It’s therefore timely to introduce the 25-year bond to meet investor demand, and at the same time provide financing for long term development projects,” he added.

 The central bank stated that the bond with a fixed coupon of 15.95 percent is exempted from withholding tax and interest is paid twice annually. It will also be listed on the Dar es Salaam Stock Exchange (DSE) after the primary trading.

“The introduction of the 25-year Treasury bond 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,” stated the BoT.

According to statistics from the DSE, the total outstanding listed government (Treasury) bonds increased by 3.5 per cent from Sh12.243 trillion as of September 30, 2020 to Sh12.666 trillion as of December 30, 2020.

 The new bond is expected to widen the market as well as provide an opportunity for long-term investment, which experts say is key for economic growth.

“Economic growth requires long-term investment, and that is why I think the introduction of such a bond is a positive move for the economy,” said Prof Delphin Rwegasira of the University of Dar es Salaam’s School of Economics.

He said the government has been implementing development projects such as the ongoing construction of the standard gauge railway and the Julius Nyerere Hydropower Project, which need long-term financing.

“It’s a very positive move, and that is the way to go,” said Prof Rwegasira