Tanzania’s bonds paradox

Prof Warsame
 Short-term debt instruments are of late fetching high interest rate, as opposed to long-term, a trend normally experienced during recession.

The Dhow Financial Managing Director, Prof Mohamed Warsame, said this phenomenon portrays an exclusive picture for the country’s debt market which is against other markets.

“This trend is normally  experienced during the recessions,” Prof Warsame said during CRDB Bank’s editors, investors and stockbrokers briefing yesterday.

“In economic downturn short term instruments fetches high interest than long term because the future is uncertain, (but not in normal trend),” he said.

The latest auction results for government securities shows that 364 treasury bill sold early this month fetched 15.14 per cent while five and ten years bonds had yield rate of 14.93 per cent and 14.99 per cent respectively.

The financial analyst said “the trend might be also caused by big liquidity squeeze” to tame inflation hovering at over 18 per cent in April.

Other money market analysts say the trend started to be experienced since the central bank adopted the tight liquidity stance to force investors to demand high interest rates on short term loans.

“The down spiral of money squeeze started to impact money market as interest rates are going up,” CRDB Bank Managing Director, Dr Charles Kimei said, advising BoT to incorporate other measures to curb inflation as it pushes operational costs beyond limit.

The Dhow Financial report shows that interest rates for treasury and interbank have been highly volatile in the last six months.

Yesterday, Standard Chartered Bank daily market report shows that interbank market remained well funded with activities seen across a wide range of banks. “The offers ranged from 19 per cent being the highest while the lowest offer was at five per cent.

The average rates came at 15.73 per cent,” the bank said. However, in the recently past, the interbank rate had climbed to 30 per cent being the highest since trade liberalisation in mid 1990s, while short term government securities shot to almost 20 per cent.
Source: The Daily News, http://dailynews.co.tz, reported by Abduel Elinaza

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