Why equity investors upheld their preference for Treasury bills in March, 2023

Primary auctions of government securities had mixed results in March with investors upholding their preference for Treasury bills according to the Bank of Tanzania (BoT) Monthly Economic Review for April 2023.

During the month, the Central Bank conducted two Treasury bills auctions with a total tender size of 354.9bn/- to cater for government budgetary operations and monetary policy which were both auctions were oversubscribed receiving bids worth 744.9bn/- of which 387.8 bn/- were successful.

“The increased appetite for Treasury bills reflects adequate liquidity in the economy, coupled with banks preferences for shorter end of the yield curve as part of portfolio rebalancing in favour of more liquid assets,” the report says.

In line with high demand, weighted average yield eased to an average of 5.81 percent in March from 6.34 percent recorded in the preceding month.

During the month, the BoT also conducted 15- and 25-year Treasury bond auctions for government budgetary financing, with a combined tender size of 287.4bn/-.

The 15-year Treasury bond auction was undersubscribed by about 24 percent, receiving bids worth 79.5bn/- while bids received for the 25-year bond auction were more than twice of the amount offered, totalling 414.8bn/-. Ultimately, the total successful amount was 292.6bn/-  

Yields to maturity for the 15- and 25- year Treasury bonds rose to 11.63 percent and 12.96 percent, from 11.43 percent and 12.76 percent in the previous auctions, respectively.

According to market analysts, fixed income activities will be slightly elevated as the market adjusts positions ahead of the 25-y ear Treasury bond auction scheduled for 10^th May, 2023.

The Zan Securities Chief Executive Officer (CEO) Raphael Masumbuko commenting on next week’s auction said, “We expect the auction to oversubscribe with yields edging slightly upwards,” He added, “Overall year to date the yield curve continues to steepen across the curve highlighting investors’ demand for higher rates,”