Tanzania Daily News (Dar es Salaam)
Sebastian Mrindoko
1 December 2011
A SLIGHT decline of the rate of return impacted greatly on the five years maturity bond resulting into under subscription, the Bank of Tanzania (BoT) auction results conducted on Wednesday has indicated.
According to the auction results, the government offered 30bn/- but the total amount tendered was only 8.35 bn/- at an average yield to maturity of 13.15 per cent compared to 14.01 per cent of the previous bond trading.
The Bank’s interventions and acceptance of only 7.15bn/- is an indication that quotations were by far different from what was prevailing in the secondary market. In this case, investors placed their bid below the price offered by the Bank of 70.01/-.
Commenting on the auction results, the Chief Executive Officer of Zan Securities, Mr Raphael Masumbuko said the fact that interest rates offered is below the inflation rate which for investors amount to loss.
According to the National Bureau of Statistics (NBS) the year-on-year inflation continued to rise in October reaching 17.9 per cent, up from 16.8 per cent in September, on the back of higher food and fuel prices.
Mr Masumbuko said also that the just concluded Tanzania Breweries Limited (TBL) mini-Initial Public Offering (IPO) attracted investors to divert their resources to the purchase of shares, thus cutting down investment on government securities.
Furthermore, he said the Central Bank measures to curb the rising inflation including liquidity tightening could have impacted on the investors’ response to the bond.
According to the Central Bank monthly economic review for September, two auctions of Treasury bonds, in which the first auction a 5-year bond worth 40bn/- was offered and the market was undersubscribed by 10.5bn/-.
The Bank intervened and accepted bond worth 8.3bn/- at cost value. In the second auction, the Bank offered a 7-year bond worth 20bn/-, which was oversubscribed by 6.2bn/-, but quotations were by far different from what was prevailing in the secondary market.
On account of this, the auction was cancelled. However, with regards to corporate bonds, companies that issued them at the floating rate are likely to suffer bitterly by paying heavily due to the rise in interest rates pushed up by the soaring inflation.
The negative tend will lead to increased financing costs but swelling returns for investors. Companies with maturing corporate bonds at the present inflation rate of 17.9 per cent will have to dig deep in their pocket to payback the loans due to surging interest rates on government securities considered as benchmarked.
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