Tanzania’s fixed income market, particularly within the Treasury Bonds (T-Bonds) segment, exhibited varied performance in July 2024 across both the primary and secondary markets. The month's activity provided significant insights into investor behavior, demand trends, and pricing mechanisms

In the primary market, July 2024 saw three major T-Bond auctions, each offering different maturities and yields. The 20-year T-Bond, with a yield of 15.49%, showcased strong investor demand. The auction, held on July 31st, 2024, resulted in a weighted average yield-to-maturity of 15.1683% and a weighted average coupon yield of 15.1440%. The total amount tendered reached TZS 489,417.20 million, with successful bids amounting to TZS 431,858.70 million. This healthy demand for long-term securities reflects investor expectations for higher returns.

In stark contrast, the 5-year T-Bond auction held on July 17th, 2024, failed to secure any successful bids. Despite the total tendered amount of TZS 47,763.10 million, the auction ended with a weighted average yield-to-maturity and coupon yield of 0%. This suggests a lack of investor interest at the offered rates or a mismatch between investor expectations and government pricing, resulting in the auction being undersubscribed.

The 15-year T-Bond, with a yield of 13.5%, conducted on July 3rd, 2024, experienced moderate success. With a weighted average price of 93.1934, the auction achieved a weighted average yield-to-maturity of 15.0516% and a coupon yield of 14.4860%. Out of the TZS 240,486.40 million tendered, TZS 184,000.10 million were successfully bid. The lower weighted average price indicates that investors sought a discount, due to their outlook on medium-term economic conditions.

The secondary market in July 2024 displayed mixed sentiment, with significant variation in turnover and deal activity across different bond maturities. The 25-year bond with a 15.95% yield emerged as the most prominent, trading at an average price of 111% and yielding 14.81%. This bond dominated the market, accounting for 42.41% of the total T-Bonds traded, underscoring its appeal to investors seeking long-term security with attractive returns.

Following closely, the 20-year bond with a 15.49% yield saw substantial turnover, amounting to TZS 68.71 million, and traded at a price of 104%, yielding 15.36%. This indicates a strong demand for long-duration bonds, as a hedge against inflation and economic uncertainty. On the other hand, shorter-term bonds, such as the 5-year bond with a 9.18% yield, showed no trading activity, reflecting a clear investor preference for longer-term securities, especially in an environment where shorter-term yields are less competitive.

Overall, the secondary market recorded a total turnover of TZS 221.94 million across 295 deals, with the bulk of the activity concentrated in the 25-year and 20-year tenors. The negligible turnover in shorter maturities, such as the 2-year bonds, further highlights the shift in investor preference toward longer-duration instruments, driven by the pursuit of higher yields and the desire for stability in uncertain economic times.

In essence, the fixed income market in Tanzania for July 2024 underscores a strong investor preference for long-term T-Bonds, driven by the search for higher yields amidst expectations of economic shifts. The primary market saw varied outcomes, with robust demand for longer-term bonds and a complete lack of interest in the shorter 5-year bond. In the secondary market, trading was dominated by longer-term bonds, reflecting a strategic move by investors to prioritize security and higher returns over liquidity in a potentially volatile economic environment. These market dynamics suggest that investorsare positioning themselves to maximize returns, even at the expense of shorter-term liquidity, signaling confidence in long-term investments as a protective strategy against future uncertainties.

Written By : Beatus Mlingi

Manager Research and Analytics - Vertex International Securities

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