19 November 2012

Tanzania: Appetite for Long-Term T-Bonds Grows

THE seven-year Treasury bond auctioned last week was oversubscribed by 40 per cent, a situation which indicates continued increase in liquidity in the economy and the banking sector in particular.

The auction results posted by the Bank of Tanzania (BoT) for the 10.08 per cent Treasury Bond indicates that bidding for the instrument was 76.9bn/-, against offer totalling 55bn/-.

"The Seven-year Bond floated on Wednesday was oversubscribed by 21.9bn/- , a situation which indicates continued increase in liquidity in the economy and the banking sector in particular," commented the Tanzania Securities Limited (TSL).

The weighted average yield to maturity was 15.25 per cent, slightly higher than the last Seven-Year Treasury bond's auction which was at 15.06 per cent. Likewise, an overly subscription situation is a clear indication that investors were awash with cash disproportionate with the investment opportunities.

Hiked interest rates to 15.16 per cent could be one of the reasons that hooked massive investments. The secondary market witnessed bonds worth 17.9bn/- being transacted during the week for the five, seven and 10 year maturities higher than previous week's bonds transactions worth 8bn/-.

Over 60 per cent of the key players 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. Tight liquidity is one of the BoT monetary policy instruments used to tame inflation.

The government said during the 2012/13 budget estimates that it will continue with its arrangement to borrow from domestic market for financing development projects and paying for rollover of maturing Treasury Bills and Bonds.

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