20 Yr Treasury bond undersubscribed for the first time since 2018

Investors’ appetite for the 20-yr Treasury bond waned last week with the long-term bond being undersubscribed for the first time since its inception in 2018 according to the available Bank of Tanzania (BoT) data.

Market analysts however attribute the low demand partly to recent short intervals between long term bond auctions.

The Central Bank was in the market last week offering 178.5bn/- to investors for a new 20-Year Treasury bond offering a 12.10% coupon rate annually.

This auction catered for investors with more preference for long-term papers and was subscribed by 68.98% – receiving bids totaling 123.1bn/- with the central bank accepting bids worth 103.9bn/- .

The weighted average yield to maturity went up by 23.87 basis points relative to the previous auction held mid-February from 12.6119% to 12.8506%.

Average yields have been on an uptrend over the last four auctions gaining 82 basis points from the average yield in July 2022 while the price floor however reached 93 from 100 in the same period.

This continues to reflect lessened monetary policy accommodation by the central bank to taper Inflation.

All the four auctions in the last two months were for long-term tenures and on a positive side, monetary policy is transmitted more smoothly across long-term tenures as the central bank absorbs excess liquidity to maintain inflation within the target.

The recent increased stock market activity can also explain the low auction subscription as higher-risk

Investors shift to equities.

According to the Zan Securities Chief Executive Officer Raphael Masumbuko, bond yields will continue to push higher on expectations of further central bank tightening but the push is not expected to sustain though due to lessened inflationary expectations.

“We anticipate sustained low subscription rates for medium term papers and an aggressive pricing in upcoming auctions more so on the longer-term papers as bond investors seek to capitalize on short term less accommodative monetary policy,” he said.

He added, “We expect high volatility in the stock market as we enter the earnings season might see reduced activity in the bond markets as some investors shift to stocks”.