5-year govt bond yields decline

HIGH cost of borrowing on the five years bond auctioned on Wednesday discouraged the government to take the total amount tendered by investors despite impressive performance.

According to the Bank of Tanzania (BoT) summary, the 5-year bond attracted bids worth 106.4bn/- after offering 62bn/- to the market for tendering.

By taking the whole amount tendered, the government will have to pay dearly at maturity period.

The summary shows that investors were ready to pay 86.26 as highest price for each 100/- and 74, the lowest price.

This implies that at maturity, the government has to pay 13.74 and 26.00 respectively for each 100/- borrowed from the public.

The yield rates offered in the five-year debt security declined slightly but did not discourage investors to over subscribe the bond.

Weighted Average Yield to Maturity declined to 14.81 per cent compared to 15.26 per cent of the previous 5-year debt instrument auctioned on February this year.

Similarly, the weighted average coupon yield declined to 11.39 per cent compared to 11.58 per cent of the previous session. Yields and prices move in opposite directions.

The bond prices recorded slight increase giving way for the yields to drop. Long-term interest rates are set by the bond market. And if the economy continues to grow, interest rates should rise as well.

The 5-year debt security attracted a total of 83 bids but only 45 emerged successful. Some of the key local investors in the long term government paper are commercial banks, insurance companies, pension funds and some microfinance institutions.

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