Tighter policy pushes up bonds yields, lower prices

Treasury bond

ABDUEL ELINAZA

THE 25 year government bond that goes under the hammer today is tipped to increase in yields and subscriptions due to tighter monetary policy and looming inflationary risks.

The yields and price of the 25 years Treasury bond, a darling of investors, rose to 12.56 per cent last month from 12.43 per cent in July, while the price dropped to 99/94 from 100/92.

Thus, Zan Securities CEO, Mr Raphael Masumbuko, said that policy intervention from the central bank would be more lenient in accepting bids priced in deep discounts to mop liquidity.

“Yields at the short end of the curve have begun to trend upwards as the market prices in a tighter monetary policy,” Mr Masumbuko said adding:“Looming inflationary risks might push yields even further higher.”

The central bank might accept prices at deep discounts as it reduces the speed of expanding liquidity cited from the latest Monetary Policy Committee (MPC) meeting.

Vertex International Securities predicted in its weekly market review for yields and over subscription based on the current debt market trends.

“We forecast an increase in yields and subscription in the [today’s] 25 – year Treasury bond auction,” Vertex said.

The advice by the MPC was guided by the headline inflation which reached five years high of 4.9per cent last month.

Alpha Capital Head of Research and Financial Analytics, Imani Muhingo, said the market is awaiting today’s 25 year Treasury bond auction while the general expectation is “raising yields”.

“A move to reduce liquidity may be interpreted in the latest Treasury bonds auctions where the central bank has been consistently accepting lower prices bring the average of all bond prices to a discount while yielding higher than coupon rates,” Mr Muhingo said.

Also, he said, the consistent issuance of repurchase agreements since August while halting reverse repo issuances since March was another signal of a tightening policy.

Since mid the year, the bond prices, across the board, have gone down to push demand up as investors capitalised not only on prices but also on increased yield-to-maturity.

Orbit Securities said in its weekly market synopsis that the yield for the 10-year bond rose by 31.96 basis points to 10.77 per cent.

“Currently,” Orbit report issued last Tuesday said, “government bond prices are on a downward trend creating opportunities for investors to squeeze in higher yields”.

The average price for 10 year Treasury bond auctioned last Wednesday dropped to 96/83 compared to 98/74 in September while the minimum successful price was 94/-.

The yield-to-maturity for 20 years bond auctioned last month went up slightly to 12.229 per cent from 12.106 per cent in September. The price dropped to 99/011 from 99/95.