Yields fall as BoB raises P5.1bn for gov’t

Mbongeni Mguni | Tuesday August 11, 2026 06:00

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.

At the auctions, primary dealers, who are exclusively banks, compete to lend to the government by offering the yields they seek. 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 by February was expected to reach P26.4 billion in the 2026–2027 financial year. An upcoming revision is expected to lower the figure due to the improved performance of diamonds in the first half of the year.

Central bank data indicates that at the last auction of government notes held on July 31, bidders strongly oversubscribed for the securities on offer, whilst the BoB met its funding target for the seventh month in a row.

Yields, which indicate the cost of borrowing to government, fell across the spectrum of notes on offer, continuing a welcome trend for government seen in the past few auctions. The sharpest yield drops occurred in the shorter-term treasury bills, which the BoB has largely been rolling over to cover prior borrowing by government.

The yield on the three-month treasury bill fell to 8.14 percent from 9.41 percent, whilst the yield on the six-month moved down to 8.16 percent from 9.72 percent. The yield on the 12-month treasury bill fell to 8.4 percent from 11.75% at the March auction when the note last appeared.

The same trend held on the bonds, where government is raising its ‘new funding,’ or debt not associated with refinancing older debt. The yield on the 2029 bond fell to 10% from 10.75%, whilst the 2040 bond moved down to 12.58% from 12.65%. The yield on the bond maturing in 2043 dropped to 12.79% from 12.95%.

“Rates are no longer increasing, indicating that bond interest rates may have peaked,” wrote Econsult founder and managing director Keith Jefferis in an update on the second quarter. “For T-Bills the position is more encouraging, with interest rates actually falling; the six-month T-Bill rate fell from 11.2% in March to 9.7 percent in June, reflecting improved banking sector liquidity.”

He added: “Almost all bond and T-bill auctions have been fully subscribed since the beginning of the year, without any increase in interest rates, and indeed a decline in T-bill rates.”

Jefferis noted that the yields on the government notes were key to overall interest rates in the market.

“The dominant factor in determining interest rates remains the level of government borrowing, with the long-term bond rate remaining well over 13%,” he said.

Much of the funding the BoB has raised for government in the past few years has been in the shorter-term treasury bills, which have increasingly been used to refinance prior debt.

Last month, BoB deputy director of Financial Markets, Nenguba Chakalisa, told BusinessWeek the central bank intended to hold another engagement with capital market players in order to ensure support across the spectrum of government notes being offered at the monthly auctions.

“Remember last year we had an inaugural investor roadshow and we are working on having one again where we bring all investors here under one roof here at the bank and we engage and try to drum up appetite for the entire yield curve,” he said during a recent briefing.

“Some of these are structural issues that we have in our market, where on the shorter end is the banking sector, as they seek instruments for their regulatory requirements, whilst the longer end is the pension funds for asset-liability management purposes. “But we continue to engage the market to drum up support for the entire yield curve.”