Tanzania: Bonds Reopening to Spur Debt Market

TANZANIA — THE Bank of Tanzania (BoT) published the Treasury bonds issuance calendar for the first half of the fiscal year 2024/25.

The central bank has maintained the re-opening programme, and skewed to long-term bonds, particularly the 20-years tenor. The 20-years tenor has six (6) auctions, out of fifteen (15) Treasury bonds auctions.

However, the average time to maturity for the overall 20-years bonds will be 15.4 years.

With the calendar published, and the first auction conducted on 3rd July 2024, let us have a retrospective view of the Treasury bonds market in the ended fiscal year.

Primary Market Treasury bonds auctions were generally oversubscribed during the fiscal year 2023/24, thanks to the long-term bonds between 15-years and 25-years.

The overall subscription rate for the period was 142 per cent, while only 53.3 per cent of the tender size, equivalent to 2.83tri/- was accepted by the central bank.

Despite the initial issuance calendar allocating 10.8 per cent each for the 20-years and 25-years tenors, approximately 19.7 per cent and 23.5 per cent of the total offer size was allocated to the tenors respectively, especially after the restructuring of the issuance calendar in February 2024.

The total amount offered by the Bank of Tanzania in Treasury bonds auctions amounted to 3.73tri/-, while the tender size stood at 5.31tri/-.

The dominance of the long-term tenors was further evident on the number of number bids, whereby the two longest tenors accounted for 91 per cent of the total number of bids (9,379), and 88 per cent of successful bids.

As a result, 76.9 per cent of the tender size value originated from the two tenors, while accounting for 70.2 per cent of the total amount collected from the auctions during the year.

High number of bids reflects increased participation of retail investors, whose value of transactions surpassed insurance companies since 2020.

According to BoT's Financial Stability Report, individual investors account ed for 10.8 per cent of the value raised in Treasury bonds auctions, up from 6.3 per cent in 2019. Similar to the previous year, shortterm and medium-term tenors relatively underperformed.

The worst performance was experienced on the 5-years tenor which accounted for only 7.7 per cent of the total offer size, and 1.8 per cent of the amount accepted.

The tenor saw a subscription rate of 20.8 per cent while the central bank accepted 84.5 per cent of the tender size.

The BoT conducted a total of 23 Treasury bills auctions, different from the initial target of 25 auctions in the initial issuance calendar.

Similarly, Treasury bills were generally oversubscribed, lifted by the 364-days tenor which accounts for 65 per cent of the total offer size and 90 per cent of the tender size.

The 364-days tenor saw a subscription rate of 218 per cent compared to 158 per cent overall subscription for Treasury bills.

The total offer size from the central bank amounted to 2.75tri/- while the tender size stood at 4.36tri/- from a total of 1,700 bids.

Also read: June, the best month to invest in long-tenure bonds

The BoT accepted 1,112 bids worth 2.67tri/-, which is 61 per cent of the total tender size. The 364-days tenor accounted for 86 per cent of the total collected amount.

Secondary Market The value of transactions in the secondary market went up 7.4 per cent year-on-year, amounting to 3.61tri/- for the year ending June 2024, realised in a total of 3,801 deals.

The traded amount is 27.6 per cent higher than the amount collected by the BoT from Treasury bonds auctions during the year.

Despite an increased bond turnover, the turnover ratio fell from 17.6 per cent to 15.5 per cent. This is a result of a slower growth of the turnover due to a lesser amount accepted by the central bank during the year compared to the previous.

This affects the turnover because majority of transactions usually follow auctions, hence less acceptance on auctions affects market activities.

Following the halt of less accommodative policy, and suppression of yields since March 2024, the overall premium dropped from 15.5 per cent in 2022/23 to 5.3 per cent in 2023/24.

The premium demonstrates market's preference of higher coupon bonds as they dominate transactions in the secondary market.

Treasury Yields Movement Overall, Treasury yields began the year 2023/24 climbing, and peaked in February 2024 when the central bank halted the less accommodative policy.

Short term yields began dropping immediately in February while long term yields slightly maintained the upward trajectory until March 2024.

The 364-days yield to maturity rose from 6.97 per cent in July 2023 to 12.30 per cent in February 2024 before dropping back to 6.75 per cent by June 2024.

The prolonged upward trajectory on long term tenors in the beginning of the year followed the restructured issuance calendar during the time, due to substantial underperformance of the previous calendar.

Execution of the restructured calendar saw a sudden upward shift in long term yields in March as the bank compensated the previous auction underperformance, before implementing a push back that saw bond prices consistently rise to the end of the fiscal year.

Maturities Approximately 3.55tri/- worth of Treasury securities matured during the fiscal year 2023/24, equivalent to 100.16 per cent of the budgeted domestic borrowings for rollovers during the year.

Treasury bills accounted for majority of maturities, amounting to 2.60tri/-, while matured Treasury bonds stood at 944.6bn/-.

This means, the net addition to outstanding Treasury securities during the year amounts to 1.96tri/-.

Different from last year when the 5-years tenor dominated maturities, the 2-years tenor dominated maturities in the year under review, accounting for 43 per cent of total maturities.

Moreover, apart from the maturing 2-years tenors, all other matured tenors have higher yield compared to the latest similar auctions, indicating a declining cost of domestic debt to the government.

Approximately 1.48tri/- worth of Treasury bonds is expected to mature in the fiscal year 2024/25, while the 2-years tenor maintains dominance by 44 per cent.

Similarly, bonds maturing in the fiscal year 2024/25 carry higher yields than the current running yields, demonstrating declining cost of debt for the government.

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