Tanzania: Weak demand for long-term bonds

Jun 15, 2015

Tight liquidity would explain the current underperformance in Tanzanian long-term bonds.

The Bank of Tanzania explained that few bids were recorded at last week’s auction partly because commercial banks and corporations have annual tax obligations to fulfil soon. The leading investors in this last auction were pension funds, insurance firms and a few microfinance institutions.

Contrary to the two previous seven-year government bond auctions, this one was under subscribed: out of the 33.68 billion offered, only 5 billion worth of bids (around 2.3 million US dollars) were accepted, resulting in a weighted average yield to maturity of 16.64 per cent. This interest rate is significantly higher than the 15.6 per cent rate recorded for last April’s issuance.

Proceeds of the emission will be used to fund infrastructure projects and settle maturing debts.

This weak performance follows the under subscription recorded in the issuance of two-year treasury bills at the beginning of the month, which weighted average yield to maturity reached 14.01 per cent, compared to 12.29 per cent in the March auction.

The Tanzanian shilling lost around 22 per cent of its value against the US dollar year-on-year. Debt instruments are therefore comparatively cheap now for foreign investors. However, fears of a continuous depreciation of the local currency might be holding investors back from seizing this opportunity.