BoB engages market as gov’t debt costs rise

Mbongeni Mguni | Monday December 15, 2025 06:00

Under government’s P55 billion domestic note issuance programme, the BoB floats bonds and Treasury Bills (TB) 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.

Publicly available data show that both the actual yields and the demands for yields at each monthly auction have been rising sharply this year, due largely to the sovereign credit downgrades, the government’s uncertain fiscal outlook, and escalating interest rates.

Baitshenotse Mmopelwa, the director of Financial Markets at the central bank, said engagements were ongoing with capital market participants in order to manage the outcomes of the monthly auctions.

“Indeed, we have seen some poor performance, but in September we held our inaugural road show where we brought into the room investors, as well as primary dealers, just to speak about developments in the domestic market, as well as government being there to provide information in terms of the fiscals,” Mmopelwa told BusinessWeek in a media briefing last week.

Mmopelwa added: “Generally, when we get this pricing, sometimes investors do not understand where the Government is, or at least are asking for some transparency.”

She said following the initial engagement, the central bank and the Finance Ministry had held another meeting with capital market participants before the debut of the 25-year bond in October.

“We have seen that during that auction, the 25-year experienced strong demand, and I think it is because we engaged with investors, with primary dealers to speak about these issues, because there was also concern about what the government is doing about consolidation,” she said.

Mmopelwa told BusinessWeek that going forward, there would be emphasis on such meetings “in order to keep the market understanding how transparently we are pricing, where we are, and what we are looking for”.

Yields have been rising in recent auctions of government securities, whilst BusinessWeek trend analysis showed 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 the Government’s domestic note issuance programme.

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 pressure on yields at the auctions signals the market’s demands for higher returns in the funds they lend to government.

As a result of tighter liquidity in the financial market, as well as the demands for higher yields, the BoB has generally missed its fundraising targets at each of the monthly auctions since July last year.

The lion’s share of the funds the BoB has been able to raise for the government in its monthly auctions has been on the shorter end of the spectrum, being the three-, six-, and 12-month TBs, albeit at increasingly higher yields.

The BoB and the 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.

The funds from the auctions are critical for plugging the budget deficit, which this financial year is expected to reach more than P22 billion due to the prolonged downturn in diamonds.