Yields slide as gov’t hits P3.5bn target

Mbongeni Mguni | Monday June 8, 2026 06:00

According to Kgori Capital trend analysis, yields generally fell across the two Treasury Bills and three bonds offered at the May 26 action. The government notes settled at yields as much as 105 basis points lower than the prior auction.

At the auction, only the 17-year bond saw yields increase by five basis points.

“The lower yields are a bit of a surprise given the jump in inflation to 10.3%,” a market watcher told BusinessWeek. “The significant acceleration in inflation was announced exactly a week before the auction, so the market was well aware and would have wanted to price that into the yields demanded. “It has also been expected that the upward trend in yields would continue ahead of the September sovereign credit ratings reviews, where a downgrade is generally expected.”

Government’s borrowing costs in the local capital market have been sharply rising in the past two years, influenced by a liquidity crunch in the broader financial sector, sovereign credit ratings downgrades and competition from the more well-established market in South Africa.

The Finance Ministry and the central bank have held discussions with capital market players to stabilise the cost of borrowing, with little success, as government’s greater demands for debt funding have pushed up the costs at which this is made available.

Government is primarily relying on the local capital market to fund the estimated P26.4 billion deficit for the 2026–2027 financial year.

The May 26 reduction in yields represents a rare reversal. The nine-year bond, which represents the midpoint of the maturity spectrum for government securities, has seen its yield increase from 11.88% at the beginning of the year to 12.18% as at Wednesday.

Critically, however, for government, the decline in yields at the May 26 auction was most pronounced in the shorter-term three and six-month Treasury Bills, where the central bank has been raising the bulk of debt for government.

At that auction, the yield on the three-month bill declined by 41 basis points, while that on the six-month fell by 58 basis points. The two bills raised P3 billion of the P3.5 billion the central bank was seeking on behalf of government.

That broader trend, however, is worrying for government as it continues a pattern where more funding has been raised at the shorter end of the spectrum, necessitating the frequent rolling over of debt, rather than the long end, which would give government flexibility over its debt finance management.

A portion of the P3.5 billion raised recently is required to pay back maturing treasury bills issued earlier in the year.

Analysts have said the situation means the central bank is forced to accept the yields demanded by bidders, as it fights to settle short-term treasury bills that become due, while also depositing the rest with a cash-hungry government.