Why investor appetite for government securities is waning

Tuesday, September 4, 2018[SIZE=7] [/SIZE]

[SIZE=7]Why investor appetite for government securities is waning[/SIZE]

The Zan Security chief executive officer, Mr Raphael Masumbuko.
[SIZE=5]In Summary[/SIZE]
[li]Reduction in Treasury bonds (T-bonds) and Treasury bills (T-bills) yields is among the decisions that were intended to stimulate liquidity in the market – thereby cornering lenders into granting loans to the productive sectors of the economy as part of the wider monetary policy.[/li][/ul]

Dar es Salaam.[COLOR=rgb(226, 80, 65)] Investor appetite in risk-free government securities is increasingly lessening as recent decisions render them less profitable. This is forcing banks and other institutional investors to seek solace elsewhere, including personal loans.
Reduction in Treasury bonds (T-bonds) and Treasury bills (T-bills) yields is among the decisions that were intended to stimulate liquidity in the market – thereby cornering lenders into granting loans to the productive sectors of the economy as part of the wider monetary policy.
Financial market reports by the Bank of Tanzania (BoT) show that both the weighted average yields on maturity, and the coupon yields for long-term government securities (T-bonds), have been going down since last year.

Usually, a drop in yields translates into a decrease in what investors earn when the bonds mature.
Long term T-bonds in Tanzania have maturity periods of seven, ten and fifteen years.
For instance, the yield to maturity for the seven-year T-bonds went down from 13.98 per cent on December 20, 2017 to 12.26 per cent on August 15, 2018.
On the other hand, the coupon rate dropped from 12.16 per cent to 11.2 per cent over the same period.
Similarly, yields on maturity for the ten-year T-bonds fell to 14.4 per cent in July 4, 2018, down from 15.08 per cent on January 03 this year, while coupon yields dropped from 14.04 per cent to 13.5 per cent during the same period.

On maturity, yields for the fifteen-year T-bonds fell to 14.79 per cent on July 18, 2018, from 15.87 per cent on November 22, 2017.
For their part, coupon yields fell to 14.64 per centm from 15.59 per cent during the period under review.
Bankers and stock brokers say that – what with the BoT’s recent reduction of its discount rates, a decision taken to beef up liquidity in the market – it would not come as a surprise to see yields on government securities going down.
This would no doubt force institutional investors to turn to other investment avenues, including focusing greater attention on personal loans.
“The decrease in yields from government securities, and the decrease in discount rates, means that the BoT no longer needs our money,” said the PBZ Bank finance manager, Mr Musa Juma.

A Treasury analyst at FNB Bank, Ms Elizabeth Mkabahati, told The Citizen that, although the levels of Non-Performing Loans (NPLs) were high in the market, lenders still believe that there were still a number of honest customers who deserve to get bank loans.

[COLOR=rgb(226, 80, 65)]“If you have good customers to whom you can give loans, why would you invest in government securities?” she asked – somewhat rhetorically.
The Zan Security chief executive officer, Mr Raphael Masumbuko, told The Citizen that there is a liquidity shortage in the economy which makes it difficult for prospective investors to invest in long-term securities.

“This was why BoT reduced discount rates: to encourage investors (including banks) to invest in lending so that they can boost liquidity in the economy,” he speculated.
BoT data show that the money in circulation in [COLOR=rgb(226, 80, 65)]June 2017 stood at Sh3.62 trillion – and it has slightly improved, reaching [COLOR=rgb(226, 80, 65)]Sh3.93 trillion in June this year.
The Orbit Securities Limited chief executive officer, Mr Juventus Simon, conveyed similar sentiments.
“The decline in yields drives investors away from government securities, while the decrease in discount rates is a deliberate move to ensure that banks increase borrowing from the central bank (BoT) – thus increasing the money in circulation,” he said.

A close look at the BoT figures shows that personal loans recorded the highest growth rate of the credit extended to the private sector: 50.5 per cent in the year to end-June 2018.
Personal loans have also continued to dominate the share of credit extended by banks to major economic sectors – reaching 27.4 per cent at the end of June this year.

Magufuli simply doesn’t get the idea that for any sane business person an investment decision will be based on:

  1. Activity that promises adequate returns
  2. The environments (mostly economical, legal and political under which initial assessment was based on) will likely to be stable.
    In our current scenario, his government is violating everything the three environmental conditions hold true.

This person is a huge disaster to our beautiful country. He thinks that he knows everything therefore he is the only one capable of making the right decisions for our country unfortunately the results for the last 3 years show a negative trend. Mkapa and Kikwete are to blame kwa kumuokota huyu mtu who is not eligible to lead our beautiful country and they did so in order to protect themselves from their corruptions while in State House. I hope he goes away before it is too late.