Yields rise as gov’t raises P1bn debt
Mbongeni Mguni | Monday September 5, 2022 06:00
The Bank of Botswana (BoB), acting as government’s agent in the capital market, raised an additional P1 billion in debt for the fiscus on August 26, through the auction of three bonds and two treasury bills.
The amount raised at the latest auction was 67% of the total P1.5 billion offered by the central bank to bidders at the auction, compared to 66% allotted in the July auction.
The BoB, as government’s banker, conducts monthly auctions of medium and long-term government bonds to primary dealers who are exclusively banks. At the auctions, the dealers compete to lend to the government by offering the yields they are seeking, with the BoB deciding the 'stop-out' yield or the maximum level of interest it is willing to pay the dealers on the particular securities on offer.
Data sets provided by the central bank indicate that yields continued rising at the latest auction across the spectrum of maturities provided by the treasury bills and bonds on offer. According to the data, the yield on the 91-day treasury bill rose 22 basis points, while the 182 treasury bill climbed by 18 basis points.
Yields on the three bonds, whose maturities range from the year 2027 to the year 2040, rose by as much as 20 basis points.
The central bank’s figures show healthy demand from the market for all the notes on paper, particularly the 2027 bond which received bids worth P320 million for the P200 million on offer.
The yields on the 2027 bond began the year at 6.65 percent before reaching 6.81 percent in the June auction and seven percent in the most recent allotment. By comparison, the bond maturing in 2040 began the year with yields at 8.243 percent and was at 8.382 percent in May, before reaching 8.588 percent in the most recent auction.
The primary dealers, who exclusively participate in the government debt auctions, appear to be pushing for even higher yields, with bids for the 2040 note reaching as high as 12% in the most recent auction by the BoB.
Analysts have said part of the factors driving the yields upward are negative evaluations by sovereign credit rating agencies such as Moody’s, as well as runaway inflation, which has forced the BoB into three consecutive increases in interest rates.
The Ministry of Finance, in its most recent economic commentary, flagged rising public debt costs as one of the likely consequences of interest rate hikes and rising inflation.
Both the central bank and the ministry have previously said the yields being demanded by the market are unreasonably high.
“I consider it unfortunate that in the recent past we have seen bid yields for medium to long-term government bonds that are exceptionally high and clearly out of line with the monetary policy posture and medium-term inflation prospects and also not reflecting the sovereign credit rating for Botswana,” BoB deputy governor, Kealeboga Masalila said at capital market participants meeting last August. “Therefore, the market (is) failing to provide cost-effective funding of government.”
The upsurge in inflation this year, reaching a 14-year high in July, has reportedly emboldened primary dealers in their push for higher yields at the treasury bill and bond auctions.