New 25-year bond lifts gov’t debt bid
Mbongeni Mguni | Monday November 17, 2025 06:00
The central bank, government’s agent in the local capital market, has generally missed its fundraising targets at each of the monthly auctions of government-backed treasury bills and bonds since July last year.
The auctions have been hit by tightening liquidity conditions in the local financial sector, whilst bidders, who are exclusively banks, have also raised the returns sought, in view of the sovereign credit downgrade, government’s uncertain fiscal outlook, and escalating interest rates.
The new 25-year bond is the longest-maturing bond in the suite of treasury bills and bonds offered by the BoB on behalf of government, as part of budget fundraising efforts.
According to data posted to the central bank’s website, the October 31 auction raised P3.3 billion or 92% of the amount the BoB sought. By comparison, the September auction raised 77% of the amount sought, whilst the August event raised 49%.
The lion’s share of the funds the BoB has been able to raise for government in its monthly auctions has been on the shorter end of the spectrum, being the three, six, and 12-month treasury bills, albeit at increasingly higher yields.
The BoB and government would ideally prefer more of the funding to come from longer-maturing bonds, as this would help lock in borrowing costs over longer periods and avoid the interest rate risks involved in rolling over shorter-term notes.
However, government bonds have underperformed at each auction since at least July last year, signalling bidders' demand for higher returns, tightening liquidity, concerns over long-term prospects and structural issues in the local banking sector. The central bank has noted that local commercial banks rely on wholesale deposits and short-term funding. Wholesale deposits are largely short-term, with a high turnover amongst corporate and non-bank financial institution depositors.
The new 25-year bond was designed to ease the situation, BoB officials stated.
“It's a balancing act, and we are trying to make sure that we are able to get funds in the longer end and also be able to please those investors who are more interested in the shorter end,” BoB senior dealer in the financial markets department, Boago Kebaitse, said at a recent Bifm seminar.
BoB deputy governor Lesego Moseki recently said the new bond would help those investors, such as insurance and pension funds, seeking to match their assets and liabilities over the long term.
“This is a new bond to try and provide an asset that the institutional investors like your pension fund can use or have to align, or to match their liabilities,” Moseki, who is the incoming governor of the central bank, told the media. “So it is part of the suite of instruments that we usually work on to try and increase the duration of the yield curve.”
At the October 31 auction, yields again trended up, with the 2040 at 11.4% from 10.4% in August, whilst the bond maturing in 2029 rose to 10.3% from 8.4 percent in April, which was the previous time it was successfully allotted.
Higher yields for the bidders mean steeper borrowing costs for the government, at a time when the forecast P22 billion budget deficit for the 2025–2026 financial year will be financed mainly by domestic debt.