The government Rwf15 billion Treasury bond started trading on the floor of the Rwanda Stock Exchange (RSE) yesterday, becoming the 11th bond to be listed on the local stock market.
Officials of the National Bank of Rwanda, the primary issuer, say they hope to build on the 232 per cent oversubscription success to attract more retail investors to trade in government instruments on the secondary market.
However, investors in government debt tend to hold onto their stocks until maturity period, resulting in inactivity on the secondary market.
This, analysts say, is holding back growth of the bond market.
"Although there is a lot of appetite for government paper, the challenge is that we have more investors buying to hold rather than to sell which has kept the secondary market a bit inactive," John Rwagombwa, the central bank governor, said before ringing the bell to launch the trading yesterday.
But Celestin Rwabukumba, the RSE chief executive, attributed low activity on the secondary market to the few products on the stock market.
"With time, as more bonds are listed, investors will be encouraged to sell some of their bonds so as to buy more lucrative ones," Rwabukumba said.
"Buyers usually buy a product which has better yields than the deposit rates. However, there are few equities and bonds which they can invest in. But the existing ones are quite attractive."
He said because there was no incentive to sell on the secondary market, the majority of investors, especially banks and insurance companies, held onto their investment until the end of the bond's maturity period.
"These kinds of investors are not speculators and sell their holdings only when they know they stand to gain. That's why we have to get more attractive products to encourage them to sell and invest," Rwabukumba explained.
The bond's coupon rate is 11.875 per cent, with government making interest payments after every six months.
Elias Mugabe, a broker with CDH Capital, was the first to place a Rwf600,000 bid on the bond yesterday.
He said he wanted to encourage investors to sell bonds at the buying price in order to encourage buyers at the same time.
"These bonds are usually traded at Rwf100 each at the bourse, meaning that if I wanted to sell at a profit, I would sell at say Rwf101 each," Mugabe told The New Times.
"However, I put it at Rwf100 to encourage people to buy from investors who want to redeem their money."
Meanwhile, Rwagombwa said the government's quarterly bond issuance programme was meant to bolster activity in the secondary market as well as enabling investors to have more trading options.
He urged the Capital Markets Authority and RSE to sensitise the public on the benefits of investing in the bond market.
"There are still few retailers participating in these bonds. Overall, we had 24 retail investors [for Rwf15 billion bond issued last week] from Kigali compared to 27 we had last time [February issuance], but we had 10 from outside Kigali coming on board this time," he said.
"Therefore, we need to attract more investors because the more players we have, the more activity in the secondary market."
Many Rwandans do not understand how the bond market operates or how they can benefit when they invest in shares.
Today, there are six fixed income securities trading at the bourse, including two corporate bonds from I&M Bank and the World Bank's International Finance Corporation Umugandabond.
The government started the bond issuance programme in 2008, but hit a snag the same year due to the global financial crisis. It resumed issuance in 2010 and 2011, with small issuances of Rwf10 billion.
It, however, stopped the programme opting to focus on Treasury bills, especially last year after some donors suspended aid. It was to enter the bond market with the hugely successful Eurobond issuance last year.
This year, the government has issued two bonds so far under the quarterly issuance programme; the Rwf12.5 billion three-year bond issued in February, and last week's Rwf15 billion issue.