5-Yr Treasury bond undersubscribed on investors’ appetite for long-term papers

Investors’ appetite for the 5-yr Treasury bond waned last week with the short-term bond being undersubscribed according to the available data from the Bank of Tanzania (BoT).

The Central Bank was in the market last week offering 103bn/- to investors for a new 5-Year Treasury bond offering an 8.6% coupon rate annually.

This auction was catered for investors with more preference for medium-term papers.

The auction was subscribed by 46.17% – the auction received bids totaling 47.55bn/- and accepted bids worth 44.15bn/-.

The weighted average yield to maturity went up by 17.87 basis points relative to the previous auction held on January 4^th, 2023 from 9.6670% to 9.8457%.

Average yields have been on an uptrend over the last four auctions gaining 90.77 basis points from the average yield in May 2022.

Moreover, the price floor has reached 92.4 from 96.5 in the same period. This continues to reflect lessened monetary policy accommodation by the central bank to taper inflation.

This 5-yr treasury had been undersubscribed, as were the previous two 5-yr auctions reflecting investor’s current appetites for long  tenures such as the 25-yr due to its higher cash flow appeal.

The recent increased stock market activity can also explain the low auction subscription as higher-risk investors’ shift to equities.

According to market analysts, the equities strategies for 2023 should be focused on companies with solid fundamentals, which will show more growth.

The Zan Securities Chief Executive Officer Raphael Masumbuko said, “From a macro- economic perspective, low inflation and resilient cost pressures will be key drivers to compliment the quality of Tanzania equities.

He added that given the strong growth environment in the Tanzania economy\ companies are expected to increase topline and bottom-line growth relative to FY 2022.

“In the short-term, we might see slight volatility in the weeks ahead as companies begin to exercise their corporate action,” he said.