Long-term T-bonds show steep yield curve this year

THE long-term Treasury bond yields have yo-yoed in the last three years though show a steep increase in the first seven months of this year.

The yields are expected to rise further as the government’s demand for public financing has significantly increased after the 2023/24 budget rose by 6.9 per cent to 44.4tri/-.

Tanzania Securities Limited (TSL)’s latest report ‘Treasury Bond Yield Trend Analysis’ released recently shows this year’s yields of all bonds have significantly increased compared to the previous years’ lead by 15, 20, and 25-year.

The report showed in the first seven months of the year the 15- year bond yield climbed to 11.96 per cent from 11.20 per cent, the 20-year bond yield rose from 12.23 per cent to 18.03 per cent while 25-year yield significantly increased from 12.76 per cent to 13.60 per cent.

“The rise is mainly due to the increase in the government’s demands for funds to finance the budget which pushed down the prices of bonds, along with an increase in investor’s appetite for the bonds,” the report said.

The bond price and yield trends, despite registering a positive outlook since the beginning of this year, they have fluctuated in 2021 while in 2022 were down.

It is shown in the report that in 2021, the primary market recorded higher bond yields throughout the year compared to 2020.

The 20-year bond closed the year at a yield of 15.41 per cent an increase from 15.39 per cent by January in 2021.

The report also showed the 15-year bond yield climbed slightly by 0.0004 points from 13.53 per cent to the highest 13.57 per cent; by June 2021, the bond yield further climbed by 13.61 per cent.

Additionally, the 25-year bond was auctioned on April 2021, with a yield of 16.34 per cent. The auction was oversubscribed by 279 per cent which demonstrated the appetite for longer-term securities. The auction registered a minimum price of 95/-, thus pushing yields to 16.34 per cent. Though at the end of the year its yields dropped to 15.49 per cent.

Moreover, in 2022 the bond market experienced a major drop in yields. The drop in yield was mainly due to the decline of coupon rates—interest rates.

The report showed by May 2022, 25-year bond yields declined to 12.36 per cent from 15.49 per cent at the beginning of the year, attributed to the decline of coupon rates from 15.95 per cent to 12.56 per cent.

The 20-year bond yield declined to 11.60 per cent due to a decline in interest rates that impacted the coupon rate from 15.49 per cent to 12.1 per cent. The bond’s yield climbed to reach 12.23 per cent at the end of the year.

On other hand, last June 2022 the 15-year bond yield declined to 11.27 per cent from 13.57 per cent in the previous year.

The decline was due to a drop in the interest rate, coupon rates, of the bond from 13.5 to 11.15 per cent.

The TSL report shows that at the late June 25-year bond auction, the successful bids, allotted, sum up to 276.78bn/- against 180bn/- that was offered. This pushed the minimum successful bid down to 90 and made yields climb to 13.56per cent.