Demand for bonds surges amid improved liquidity

Ten-year bonds auctioned last Wednesday attracted over 45 per cent more interest, proving earlier predictions.

Market analysts predicted that demand for the Treasury’s fiscal policy and development instruments for October would be oversubscribed, given the level of liquidity on circulation.

Bank of Tanzania (BoT) had offered 43bn/- for sale but investors came up with 62.58bn/-, that is 19.58bn/- or 45.54 per cent higher demand for the long terms tools as analysts said it was a clear sign of improved liquidity in circulation.

“The auction will be oversubscribed as the yield on the maturity of the 10-year Treasury bond rises slightly,” the Standard Chartered Bank had formerly predicted in its Daily Market Commentary. 

Despite the oversubscription, BoT accepted only 43bn/-, with maturity rate of 15.28 per cent, slightly higher than the 15.16 per cent of last June.

Seven-year bonds were also oversubscribed with investors offering 50.08bn/- compared to the planned 43bn/- that the Treasury wanted mobilised. 

Similarly, the yield shot up to 15.06 per cent compared to 14.85 of the previous trading.

The central bank had also offered 43bn/-, up from the 30bn/- of the previous trading for the five-year bonds but were oversubscribed to 60bn/- at 14.49 per cent yield rate. The government accepted only what it had initially offered.

The BoT has been applying tight liquidity measures to contain inflation that was seen to stifle investments in the money market. Long term bonds are usually the preserve of Pension Funds with commercial banks preferring Treasury Bills that offer quicker rates of maturity.

Pension Funds, insurance companies and a few microfinance institutions are among key players in the Treasury money market business, often seen as secure investment.

According to the BoT economic bulletin for the quarter ended June this year, the Bank issued seven and five-years Treasury bonds worth 30bn/- for each category in July 2012.

Both auctions were oversubscribed, whereby demand was 71bn/- and 75.8bn/- and - for the seven -year and five-year Treasury bonds respectively. The Bank intervened by accepting all bids for the fiveyear bonds but offered 30bn/- only for the seven -year bonds.

The yield on maturity for the five-year bonds declined to 14.74 per cent from 14.93 per cent of the previous auction while seven-year bonds dropped to 14.86 per cent from 15.45 per cent of the previous trading.
Source: The Daily News, , reported by Sebastian Mrindoko
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