By 
BANK of Tanzania (BoT) has reversed down treasury bonds coupon rates to realign the instruments with current debt market reality.
The move announced over the weekend comes into effect as this week the 20 years government bond goes to hammer on Wednesday.
The rates, for example, the coupon rate for 25 years bond, investors’ darling instrument, were reversed down to 12.56 per cent from 15.95 per cent and 20 years to 12.10 per cent from 15.49 per cent.
Alpha Capital Head of Research and Analytics, Mr Imani Muhingo said the move was “just realignment” between current prices and yields, with minimal effect on the current trend treasure yields.
[The move] is rather to correct the current significant premiums,” Mr Muhingo told the ‘Daily News’ on Sunday.
“Investors shall accordingly lower bidding prices to attain yields as similar as current. It should stabilise bond prices and cement the lower yields accepted by the market now, which is a positive to the injection of liquidity in the economy.”
One of the medium to long term effects should be an increased credit growth to the private sector, a trade-off from the current significant credit growth to the government.
“We wait to see how the market shall react in the [this] week’s 20 years auction,” he said.
Zan Securities Chief Executive Officer Raphael Masumbuko said that if the market has the ability to acquire bonds with 15.49 per cent coupons such as the previous 20 year bonds at yields below 12 per cent, then the market will also be in a position to acquire bonds issued with similar coupons.
“The newly introduced bonds with revised coupons [however] will take some time to be liquid in the market, Mr Masumbuko said.
Some economists said the impact of new rates will significantly affect new behaviour where risk free investment was seen as the only option to earn profit.
Dr Hildebrand Shayo, an economist-cum-investment banker, said interest rates across market segments tend to be linked somewhat through arbitrage and also because of limited resources government borrowing has an effect on all interest rates.
“I saw this coming and raised this problem previously that the excessive government borrowing internally may be bad for the economy.
“Since when government issues high levels of its securities, it has to pay a high price in the form of interest to be able to raise its financing target, because of resource limitations,” Dr Shayo said.
Secondly, he said, BoT need to reconsider lowering these rates further if its aim is to create wealth amongst Tanzanians.
Also, with reversed rates down, the economy is going to benefit because a bond with a coupon rate that’s higher than the market rate of interest tends to rise in prices thus analysts projecting price declining.
Vertex International Securities, Advisory and Capital Markets Manager Ahmed Nganya said they think investors are shifting to lower maturities.
“With the latest move of the Bank of Tanzania to lower coupon rates, we anticipate prices for Treasury bonds to decline and yields starting to go up.
“We expect next week’s 20 – year bond to oversubscribe with an increase in yields,” Mr Nganya said.
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