Gov’t aims for P3.5bn in fresh debt bid
Mbongeni Mguni | Monday May 26, 2025 12:59
Government is counting on its domestic debt programme to primarily support the forecast P22.1 billion deficit for the 2025–2026 financial year, with external loans playing a smaller role.
However, bidders at the monthly auctions of the government notes have increasingly pressed for higher returns for the funds they are lending government, resulting in the BoB missing the debt targets consistently since July last year.
This week, the central bank was due to auction two treasury bills at P1.5 billion each with maturities of 91 and 189-days, as well as three bonds carrying maturities ranging from 2027 to 2041.
In recent months, the BoB has raised most of its funds for government from the shorter end of the spectrum, trend analysts said uneasiness in the market about government’s long term fiscal sustainability.
Yields have been rising at the monthly auctions due largely to the liquidity crunch affecting the capital market, as a result of government intensifying its fundraising efforts. The recent downgrades of the country’s outlook by S&P as well as Moody’s are expected to further fuel demands for higher yields by the market, although both agencies affirmed their high assessment of the country’s sovereign credit rating.
Central bank officials have said the liquidity crunch was due to lower diamond revenues, which in turn have increased government’s debt appetite to settle its running costs and development budget.
The liquidity challenge has also seen several banks increase their lending rates, in order to match the higher rates they are forced to charge in order to attract deposits.
“Liquidity levels declined substantially from the third quarter of 2024, resulting in yields pickup and a divergence between the T-Bill rates and the Monetary Policy Rate,” the BoB said this week in a monetary policy report for April. “The government securities market remains with upward pressure on yields, as shown by the low uptake of government securities at primary auctions.”
Under government’s domestic note issuance programme, the BoB floats bonds and Treasury Bills each month to raise debt for government in the capital market. The programme’s ceiling was raised to P55 billion early last year after the previous P30 billion cap was reached due to more aggressive borrowing caused by stubborn budget deficits and pandemic spending.
At the auctions, primary dealers, who are exclusively banks, compete to lend to the government by offering the yields or returns they are seeking. The BoB decides the yield or the 'interest' level it is willing to pay the dealers on the particular securities on offer.
At the April auction, Kgori Capital trend analysis indicated that, yields increased across all the notes on offer, rising in one instance by as much as 45 basis points.
“All the bonds and T-bills on offer were under allotted during the auction. This was more prevalent at the long end of the curve. “Bond stop-out yields increased across all tenures, more especially at the belly of the curve,” the investment management firm said.
The presence of South Africa as a close-by competitor for returns with the BoB, has also been a factor pushing up yields, as local capital has an alternative to go to.