Low yield chases away 35-day paper investors

Treasury bill investors have shunned 35 days paper for a seventh consecutive auction due to low yield compared to similar short term investments.

Data shows that the last time investors participated on the 35-day paper auctioning was last October, this complicating pricing of short-range loans, deposits and the like.

Bank M’s Vice President and Head of Treasury Henry Lesika said investors, especially banks, have been shying away from the 35 days because it pays a low yield compared to similar short-term investments.

“This difference is significant enough to compensate the investors for the credit risk associated with such alternative investments like interbank market,” Mr Lesika told the 'Daily News' over the weekend.

He added: “for example if you look at the last time there was a successful bid in 35 days the yield was just above 4.0 per cent.

“Around the same time the interbank overnight market was paying two times that return (above 8 per cent), with one week to one month paying above 10 per cent.”

The Bank of Tanzania Director of Economic Research and Policy, Dr Joe Masawe, said investors walked way from 35-day paper due to better yields offered by similar instruments, such as Repurchase Agreements (Repos).

“Basically it might be because of Repos’ yields,” Dr Masawe, who is on leave, said, “As it only takes 14 days to reap and rollover the investment for Repos.” Looking at last December data, if one invests on 14-day Repos gets 5.5 per cent compared to a 35-day T-bill of 4.0 per cent.

The market feels the pitch of absence of 35-day interest rates. Mr Lesika said the problem of not having active trades on the 35 days is that the market lacks an interest rate benchmark for one-month.

“Remember Tanzania does not have an interest rate benchmark like Libor (London Interbank Borrowing Rates), hence Treasury Bills and Bonds have been used as the reference,” Mr Lesika said.

As a result, he went on, “pricing of short-term deposits, loans and derivatives becomes complicated and lacks consistence across market.”
Source: Daily News, reported by Abduel Elinaza from Dar es Salaam, Tanzania
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