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Analysts forecast oversubscription over 5-year bond

Analysts forecast oversubscription over 5-year bond

DEBT analysts are projecting the five-year Treasury bond to be oversubscribed but with no significant change in yield rate.

The bond, which is the last in this fiscal year, goes under the hammer today and its trend, according to analysts is hunt by the previous auction for bills and short term instrument.

Zan Securities Chief Executive Officer Raphael Masumbuko said most debt investors go for longer-tenure government bonds due to returns offered and not short-term ones.

“Investors’ appetite appears to be for the longer-term securities, which offer a higher return. “We anticipate this notion to be reflected on [today’s] in the 5-year Treasury bond auction, which is the last auction for the 2020/21 financial year,” Mr Masumbuko said.

The government today wants to borrow from the public some 101bn/- in five years at a coupon fixed rate of 9.18 per cent.

Vertex International Securities, Manager of Advisory and Capital Markets Mr Ahmed Nganya said the mid-last week auction results for Treasury bills signal a change in yield trend for short term treasuries.

“We expect [this] auction for the 5–year bond to oversubscribe with no significant change in yield,” Mr Nganya said.

Mr Nganya said the last week auction results for Treasury bills saw weighted average yield for 364 bills continue to decline to record a decrease of 11.34 per cent compared to the previous auction.

The BoT offered the usual size of 76.7bn/- but the public tendered 144.94bn/-.

“The BoT took less than the offered size despite a handsome oversubscription during the Treasury bills auction,” Orbit Securities said in its weekly market—synopsis report.

In the end, for the auction, the central bank accepted merely 30.7 per cent of the tender size or 44.5bn/-.

The weighted average yield to maturity for the 182 days tenor gained 4 basis points (bps) to 3.57 per cent while the 364 days tenor lost 67bps to 5.24per cent. The 35 days and 91 days tenors were cancelled after receiving zero bids.

However, to attract more debt investors the ministry of finance proposed to exempt junior government bonds from tax derived from interest earned.

The Minister for Finance and Planning, Dr Mwigulu Nchemba, moving the 2021/22 budget proposed to widen the scope of the exemption from income tax on interest derived from Treasury bonds.

“This measure is intended to extend the exemption to promote investment in Treasury bonds…,” Dr Nchemba told the house last Thursday.

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