Yield demands climb at gov’t debt auctions
Mbongeni Mguni | Monday December 8, 2025 06:00
According to figures published by the Bank of Botswana (BoB), which is government’s agent in the capital market, the highest bid received for the various bonds offered in the monthly auctions has been ticking up over the months.
Whilst the central bank does not automatically accept the highest bid received and, in fact, nearly always rejects it, the rising rates indicate how the market is pricing government debt.
BusinessWeek trend analysis, based on published central bank data, shows that the highest bid received for the bond maturing in 2035 rose from 14% at the June auction to 21% at the last auction, held on November 28. The 2035 is the midpoint of the spectrum of the bonds offered under government’s domestic note issuance programme (DNIP), the P55 billion borrowing instrument approved by Parliament in March 2024.
The highest bid received for the 2043, which until recently was the longest-maturing government bond, rose from 13.5% in January to 17% by May, before peaking at 22% at the last auction in November. The shortest-maturing bond, the 2027, saw its highest bid received, rising from 13% to 14% between February and May, when it was last offered by the BoB.
The pressure on yields at the auctions signals the market’s demands for higher returns in the funds they lend to government.
The auctions have been hit by tightening liquidity conditions in the local financial sector, with the bidders, who are exclusively banks, raising the levels of the returns sought, in view of the sovereign credit downgrades, government’s uncertain fiscal outlook, and escalating interest rates.
As a result, the BoB has generally missed its fundraising targets at each of the monthly auctions of government-backed treasury bills and bonds since July last year.
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.
Besides the highest bid rate, there are other indicators that the market is diverging from the central bank in its pricing of bonds.
“There's been a little bit of a dislocation of what the market wants to price bonds at, or the yields they want, and what the issuer, or the primary issuer being the government, is willing to pay,” Ninety One head of investments, Alphonse Ndzinge, said recently. “So what we've recently noticed is there's an emerging dislocation or divergence between the primary market and the secondary market for government bonds, and it's quite wide, which is something that we are paying particular attention to. 'For instance, the 2029 bond, where we have it on a yield of 8.4 percent, there are trades in the market now at 12.4%, and that's about a 400-basis points differential, which for bonds is a significant amount.”
Under the DNIP, the BoB floats bonds and treasury bills each month to raise debt for government in the capital market. 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.
The funds are critical for plugging the budget deficit, which this financial year is expected to reach P22.1 billion due to the prolonged downturn in diamonds.