Africa-Press – Botswana. Government is hoping to raise P2.1 billion in debt today (Friday) through the auction of treasury bills and bonds, in the latest round of funding efforts from the domestic market.
The Bank of Botswana (BoB), as government’s banker, conducts monthly auctions of treasury bills as well as bonds to primary dealers who are exclusively banks. At the auctions, the dealers compete to lend to the government by offering the yields they are seeking, with the BoB deciding the ‘stop-out’ yield or the level of interest it is willing to pay the dealers on particular securities on offer.
However, since its approval by Parliament last September, the P30 billion domestic borrowing programme has underperformed, with the dealers demanding yields higher than the BoB and government have been willing to accept. The situation threatens government’s ability to fund the budget deficits it has forecast for the 2020-2021 and 2021-2022 fiscal years, which amount to about P20.6 billion.
Capital market participants have said their desired yields are pricing in the country’s recent sovereign credit downgrade by Moody’s as well as higher inflation, where the rate recently hit 8.9 percent, a nine-year high.
According to an issuance programme circulated in the market this week, the BoB will today be offering P1.5 billion in three treasury bills with maturities ranging from 91 days to 364 days. On offer as well will be three bonds ranging from P100 million to P300 million and with maturities ranging from 2027 to 2043. The P2.1 billion on offer at the auction is the highest amount the BoB has sought at its monthly auctions since the P3.3 billion offered in February. That auction garnered about P1.4 billion for government, with bonds heavily underperforming as they only accounted for P160 million of the funds raised. The central bank is hoping for better outcomes at today’s auction, buoyed in part by the improved performance of bonds at the September auction. Of the P850 million raised for government in that auction, P500 million came from bonds, one of the highest ratios in recent months. Analysts say part of the reasons for the improving performance of bonds is the BoB’s willingness to accept higher bid yields by the primary dealers. At the last auction in September, the yield on the 19-year bond rose by 3.35 percentage points, while the two other bonds on auction recorded increases of five basis points each. The BoB, however, is keeping a wary eye on the yields and has expressed concern about the pricing of government securities in the market. “I consider it unfortunate that in the recent past we have seen bid yields for medium to long-term government bonds that are exceptionally high and clearly out of line with the monetary policy posture and medium-term inflation prospects and also not reflecting the sovereign credit rating for Botswana,” BoB deputy governor, Kealeboga Masilila, told a recent meeting of the Botswana Bond Market Association. “Therefore, the market (is) failing to provide cost-effective funding of government.” Masalila added: “Let us reflect on this as market participants and work together to address any challenges or frictions that drive such behaviour”.