TBs appetite dries up

Published: 18 October 2019
Zimbabwe failed to raise the targeted amount through Treasury Bills in the last two auctions, underlining the huge disconnect between inflation "realities" being experienced by investors and expectations of policy makers, according to analysts.

Market analysts say investors believe inflation will continue trending upwards, despite Government expecting to see monthly inflation dropping to 10 percent by of the year.

"It is all about returns," a senior executive with a local asset management firm said.

"Fixed income securities do not make sense in the inflationary environment like ours."

The Zimbabwe National Statistical Agency reported on Tuesday the month on month inflation rate in September 2019 was 17,72 percent, shedding 0,35 percentage points on the August 2019 rate of 18,07 percent.

Finance and Economic Development Minister Mthuli Ncube, expects the monthly inflation rate to fall to 10 percent in the next two months on account of tight fiscal and monetary policy reforms.

However, inflation projection by the authorities are at variance with analysts' expectations.

"There is a huge disconnect between the inflation realities on the ground being experienced by investors and the expectations of policy makers with regards where it should be," Brains Muchemwa, the executive director of Oxlink Capital told Business Weekly this week.

"With month on month inflation still running just below 20 percent, the fixed income securities being offered by the Government yielding around 15 percent per annum are the least attractive of any investment asset class that exists in the market today."

Last week, Government was in the market seeking to raise $150 million to finance government programmes through 365-day TBs, but only $51 million was allotted at an average yield of 15,49 percent, 40 basis point firmer than previous paper.

Bids worth $21 million were rejected.

Two weeks earlier, Government had undertaken public auction of TBs to raise $300 million, but was way off its target by a wide margin after it only managed to raise $81 million.

The last time the bids outpaced the amount on offer was in September when the 91-day auction was oversubscribed to the tune of 319 percent at an average yield of 13,6 percent.

Analysts say the contrasting results reflected an "aversion to duration risk" given the uncertain hyper-inflationary environment.

"A noticeable trend in the recent TBs auctions is the relative lack of appetite for long dated paper — all in the 365-day auction have been largely under subscribed by more than 50 percent," a local financial institution, Access Finance, said in its daily market brief published in The Herald.

Meanwhile, it noted the market remains long to the tune of $3,5 billion.

"On the evidence of the last few Treasury Bills auctions, it may possibly be a change in policy instrument to effectively drain the market of the current excess liquidity," said Access Finance.
- ebusiness
Tags: tbs,


Latest News

Latest Published Reports

Latest jobs