The Bank of Botswana hopes to raise P3.6 billion in debt for government at this week’s auction of treasury bills and bonds, in the latest round of monthly fundraising in the capital market.
According to a notice on the central bank’s website, the auction will feature the three and six month treasury bills seeking a total of P3 billion, as well as the 2031, 2035 and 2043 bonds raising the balance of the P3.6 billion sought. The lion’s share of the funds the BoB has been able to raise for government in its recent 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.
Under the domestic note issuance programme, the BoB floats bonds and treasury bills each month to raise debt for government in the capital market. The programme’s ceiling was raised to P55 billion early last year after the previous P30 billion cap was reached due to more aggressive borrowing caused by stubborn budget deficits and pandemic spending.
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.
