11 January 2013

Tanzania: Seven-Year Bond Undersubscribed

HIKED yields in the seven-year bond auctioned on Wednesday this week failed to entice investors in the long term papers ending up undersubscribed by 43 per cent.

The auction summary posted by the Bank of Tanzania (BoT) show that weighted average to maturity increased to 15.6 per cent in the 7-year bond compared to 15.3 per cent offered in the previous session.

"The first auction of 2013 saw yield spiking up by 34 basis points to close at 15.6 per cent from 15.3 per cent," stated the Standard Chartered Bank report.

The Bank's predictions have already shown that, yields in the 7-year bond were expected to increase significantly due to low liquidity but did not push up investors' appetite. The auction was undersubscribed by 16.6bn/- whereas the BoT took 12.9bn/- out of the submitted 38.4bn/-.

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 fiscal year that it intends to 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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