Research analysts at Kgori Capital expect the uptrend in the yields on government bonds to ease in upcoming auctions. This, as a balance is reached between the market’s demand for higher returns and government’s desire to keep its borrowing costs down.
In a research note released this week, Kgori Capital portfolio manager, Kwabena Antwi said during the third quarter, pressure on government bonds had persisted as yields generally continued to rise across the curve.
However, there had been recent indicators of stabilisation.
“The upward shift in the government yield curve is expected to decelerate as yields on government bonds have now become attractive to investors which limits further upside pressure on yields,” he said.
Stop-out yields did not move at the last auction of government bonds, held on October 29, while at the previous auction held on September 29, yields were flat again, except for the 19-year bond which jumped by 1.65 percentage points.
Bank of Botswana figures show that from levels of 4.84 percent in January, the yield on the benchmark 10-year bond maturing in 2031, peaked at 8.3 percent in October.
However, even as government has accepted demands for higher yields from bidders, successive auctions by the central bank continue to see bonds offered without allocation. Investors have generally favoured the shorter-maturity notes on offer which are the three to 12-month treasury bills.
“The question still remains whether the government can plug the funding gap caused by the continued under allocation of domestic issuances with external loans,” Antwi said.
Capital market participants previously said their desired yields are pricing in the country’s sovereign credit downgrade by Moody’s in April, as well as the trending higher inflation.