Kgori Capital expects bond yields to flatten
Mbongeni Mguni | Monday November 15, 2021 08:26
Government is largely banking on its domestic borrowing programme to raise the billions of pula in budget deficits faced this year, but the returns or yields it has been offering investors have meant lower than targetted funds have been raised at all the monthly auctions of bonds dating back to last year. At the auctions held by the Bank of Botswana, 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 level of interest it is willing to pay the dealers on particular securities on offer.
In a research note released this week, Kgori Capital portfolio manager, Kwabena Antwi said during the third quarter, pressure on government bonds had persisted as yields generally continued to rise across the curve.
However, there had been recent indicators of stabilisation.
“The upward shift in the government yield curve is expected to decelerate as yields on government bonds have now become attractive to investors which limits further upside pressure on yields,” he said.
Stop-out yields did not move at the last auction of government bonds, held on October 29, while at the previous auction held on September 29, yields were flat again, except for the 19-year bond which jumped by 1.65 percentage points.
Bank of Botswana figures show that from levels of 4.84 percent in January, the yield on the benchmark 10-year bond maturing in 2031, peaked at 8.3 percent in October.
However, even as government has accepted demands for higher yields from bidders, successive auctions by the central bank continue to see bonds offered without allocation. Investors have generally favoured the shorter-maturity notes on offer which are the three to 12-month treasury bills.
“The question still remains whether the government can plug the funding gap caused by the continued under allocation of domestic issuances with external loans,” Antwi said.
Capital market participants previously said their desired yields are pricing in the country’s sovereign credit downgrade by Moody’s in April, as well as the trending higher inflation.