25 February 2013

Tanzania: Five-Year Bond Lands in 190 Percent Oversubscrition

THE appetite for long-term maturity bonds continued to hook massive investments leading to 190 per cent over subscription of the 5-year treasury bonds auctioned last week.

According to the auction results posted by the Bank of Tanzania (BoT) a total of 64 bids were received of which 21 were successful. The situation indicates that most investors made bids below the price offered that could be expensive for the bank during the payback period.

A total of 40bn/- was put in the market and the auction was oversubscribed by 76bn/- but the offered amount was successful at 11.2 per cent as average coupon yield. The oversubscription came despite slight decrease in the yield rate to 14.4 per cent, compared to 14.9 per cent of the previous market session, a sign of excess liquidity in the market that does not match the investment opportunities.

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. Due to liquidity improvement in the market, it is anticipated that another oversubscription in the next week's treasury bills auction.

Yields may further decline as more funds chase after government papers and following the continued decline in inflation. Treasury bills and bonds are among the instrument used by the government to borrow from the public. Domestic debt stock by instrument shows that the government bonds accounted for 74.8 per cent followed by treasury bills at 20.2 per cent.

According to the Bank of Tanzania (BoT) the stock of domestic debt decreased by 319bn/-from the level recorded in the preceding month to 5.15tri/- at the end of December last year. The decrease emanated from large redemption of government securities compared with new issuances.

On annual basis, domestic debt stock increased by 1.1tri/-from 4.05tri/- recorded in the corresponding period in 2011. The increase was mainly on account of issuance of Government securities that outweighed maturing obligations as well as securitization of an overhang of net domestic financing held at the BoT.

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