Bonds undersubscribed as investors’ appetite sap

DAILY NEWS Reporter

DEMAND for the two-year treasury bonds has remained low after fetching 22.6bn/- below the 87.8bn/- target, with low yield rates attributed to falling investors’ appetite.

Despite the undersubscription of the debt instrument as demonstrated in the Bank of Tanzania (BoT) auction summary, the government retained only 18.6bn/- as successful amount.

The preceding session of 24-month debt instrument auctioned in April this year received strong investors’ appetite after fetching 163.5bn/- above 84.2bn/-, the amount sought to be raised.

Low yield rates has in few months contributed to low investments in both treasury bills and bonds, most of which ended up undersubscribed.

The underperformance of the 24-month instrument may have been affected by low interest rates and poor performance of most commercial banks in the quarter ended June. Bank of Tanzania (BoT) Governor, Prof Flurens Luoga allayed fears that most banks will continue to fail due to high non performing loans, saying the situation continues to improve and that the banking sector is stable.

Some of the players in the treasury bonds instrument are commercial banks with over 60 per cent of the market share.

Others are insurance companies, pension funds and some microfinance institutions. Most of the banks and microfinance institutions were still struggling to reduce high non-performing loans that according to the central bank, declined slightly to 10 per cent from 12 per cent in the first quarter this year.

This is far above the 5 per cent industry rate. Average yield and coupon yield rates for the two year government securities were 8.9 per cent and 7.9 per cent respectively. Weighted average price for successful bids was 97.86 while minimum successful price/100 was 95.53.