Why investors are now considering longer-term bonds


By Joséphine Christophe

Dar es Salaam. Longer-term Treasury bonds continue to attract more investor demand despite falling yields, amid improving liquidity.
Recent 20- and 25-year bond auctions have seen record sales as investors rush for government fixed-income securities.
In the last 20-year Treasury bond auction on November 24, the Bank of Tanzania wanted to raise 139 billion shillings, but received 341 bids worth 661 billion shillings, the highest amount. never offered for a single Treasury bond auction in the history of Tanzania.
This comes even as the yields to maturity of the 20-year bond fell to 14.74% from 15.41% at the first auction in February this year.
When the 25-year bond started up this year, it attracted subscriptions worth 325.65 billion shillings against an offer of 86 billion shillings.
At subsequent auctions in August and October 2021, the bond yields to maturity fell from 16.33% to 15.85% and 15.48% respectively.
Falling yields mean that investor returns have fallen while the government is relieved in terms of the cost of borrowing.
Raphael Masumbuko, chief executive of brokerage firm Zan Securities, said oversubscription of Treasury bonds signals investors competing for returns on fixed income as the central bank continues to enforce policy accommodative monetary policy that aims to increase the money supply and reduce interest rates.
“Discussions about a potential discount on Treasury bill coupons will put pressure on auctions as investors want to lock themselves in a context of potential coupon cuts,” he said.
Arch Financial and Investment Advisory Limited Director Mazengo Kasilati said even though bond yields were falling, they were still high relative to what investors would earn in dividends on stocks.
Secondary market bond trading shows a high appetite. This week, the Dar es Salaam Stock Exchange (DSE) traded bonds valued at 2.14 trillion shillings, according to DSE chief executive Mr. Moremi Marwa.
He said the trade volume was over 2.12 trillion shillings traded for 2020 and the 1.91 trillion shillings traded in 2019.
“This has been attributed to improved financial literacy, as well as the introduction of 20 and 25 year bonds into the market,” Mr. Marwa said.
The boss of DSE also said that another important factor in the market is the increased participation of retail investors.
“In the bond market segment, retail investors have grown from 2,583 in 2018 to 8,058 investors in 2021,” he said.
Mr Marwa said retail investors have grown steadily over the past five years, breaking the tradition of depending on large institutions to trade in the bond market.
“Also due to the Covid-19 pandemic, investors continue to venture down avenues that guarantee returns,” Mr. Marwa said.

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