The 20-Year Treasury bond issued by the Central Bank this week has been oversubscribed by 20.5 per cent on investors’ appetite for longer term papers.
The result echoes central bank’s efforts towards reducing liquidity in September and October accepting bids priced in discounts, a first for long dated bonds this fiscal year.
According to available data, the Central Bank was in the market offering 136.2bn/- to investors for a new 20-Year Treasury bond offering a 12.1% coupon rate annually.
The auction received bids totaling 164.2bn/- and accepted 136.9bn/- out of the 136.2bn/- sought.
The weighted average yield to maturity increased by 7.58 basis points in comparison to the previous auction held in late July this year from 12.0307% to 12.1065%.
Furthermore, the lowest bid tendered came in at 88 down from July’s 94 emulating the markets aggressive pricing.
According to market analysts, bond yields continue to push higher on expectations of further central bank tightening.
The Zan Securities Chief Executive Officer Raphael Masumbuko said, “When we observe the auction result, the markets already pricing in a central bank tightening cycle. In light of the tight liquidity, we anticipate sustained low subscription rates for medium term papers and an aggressive pricing in upcoming auctions more so on the longer term papers”
Masumbuko noted that his firm expects a rebalancing for portfolio managers in preference for short duration papers less volatile to rising yields, as they will be keen on avoiding high duration instruments.
“Rising yields can create capital losses in the short-term, but can set the stage for higher future returns. When interest rates are rising, investors can purchase new bonds at higher yields. Over time, the portfolio earns more income than it would have if interest rates had remained lower,” he stressed.