According to the borrowing strategy document for 2024–2025 released recently, the central bank plans to raise P15.25 billion from the capital market this financial year on behalf of government. By comparison, the BoB was authorised to raise P7.05 billion for government in the 2023–2024 financial year, or less than half the target for the current financial year.
In the first two auctions of the new financial year, the central bank has already secured P7.5 billion for government from the capital market, continuing a successful streak of fundraising that stretches back to August last year.
In the most recent auction, which represented the highest amount of debt the BoB has ever raised in a single event under the note issuance programme, the BoB secured P2.4 billion through two Treasury Bills with maturities of three and six months. Three reopened bonds with maturities ranging from 2029 to 2043, raised P1.6 billion.
Yields at the auction continued the downward trend seen since late year, which analysts say is linked to benign inflation and the inflows of repatriated pension funds under the changes to the Retirement Fund Act.
Government’s debt appetite, meanwhile, is higher as it has to finance a P8.7 billion budget deficit needed for the record P102 billion expansionary budget.
The falling yields have restrained government’s debt costs as it raises more capital in the market. However, according to analysts at Kgori Capital, the last auction saw an increase of 56 basis points for the bond maturing in 2043, the longest maturing bond under the note issuance programme.
The BoB and by extension, government, went through a testing period of escalating yields beginning in September 2020 after Parliament doubled the domestic debt programme to P30 billion. A combination of a sovereign credit ratings downgrade, escalating inflation which reached a 14-year peak in 2022 and local bidders’ preference for the South African market, drove yields higher. Higher yields for the debt programme are associated with rising debt costs for government.
The situation was bleak as the BoB failed to meet its debt targets for government at each of the monthly auctions from September 2020, as it was forced to reject the rising demands for higher yields from the market.
However, since at least July last year, yields have been sliding at the auctions of Treasury Bills and bonds, while the BoB has consistently met its debt targets.
