Investors’ appetite for 7-year treasury bonds auctioned last week by the Bank of Tanzania (BoT) was high ending the trading session oversubscribed.
The government sought to raise 61.70bn/-through the debt instrument but the total amount tendered jumped to 175.46bn/-, however, at the end it retained 120bn/- as successful amount.
The oversubscription of the instrument went against the projections made by a stock brokerage firm, Tanzania Securities in its weekly market blast report that the 7-year bond would under subscribe despite higher appetite of government securities since investors preferred long tenure instruments with one goes on sale in next two weeks.
“This is because the investors prefer higher coupon bonds, unlike these medium-term bonds. “…Also, the fact that in two weeks there will be an auction for a 20-year bond hence investors are likely to hold and wait for it,” Tanzania Securities said.
Tanzania Securities pegged their projection to the past sale of the 7-year bond, which was under subscribed by 17.5 percent last October arguing that the same reasons may still make investors to shun the instrument.
Normally, proceeds from the bonds instrument are used to finance long term infrastructure projects and settle some maturing debts.
Some of the long term infrastructural projects that benefit from the funds include hydropower, roads, railways, bridges, ports, airports as well as social services like hospitals and schools.
The implementation of the projects would stimulate business growth, contribute to improved living standards and the government collects more revenue.
Some of the key local investors in the long term government paper are commercial banks, insurance companies, pension funds and some microfinance institutions.
This is the first seven year Treasury bond to be auctioned this year while the last instrument held in October last year was greeted by low appetite from investors due to tight liquidity in the market.
Investors are set to enjoy at maturity an interest or weighted average yield to maturity of 11.19 per cent compared to 12.88 per cent offered in the seven years bond auctioned in October last year.
Also, investors will enjoy the weighted average coupon yield of 10.62 per cent compared to 11.54 percent offered in the preceding 7- year bond auctioned last year.
The minimum successful price/100 declined to 89.41 compared to 82.10 of the preceding seven years debt instrument. Similarly, the weighted average price for successful bids increased slightly to 94.84 compared to 87.28 of the other session.
Also, the highest bid/100 for the long term government paper jumped to 100.00 compared to 91.08 of the session that expired in October last year.
The lowest bid/100 was 82.24 compared to 80.10 of the previous session. A total of 59 bids were received but only 27 emerged successfully.