A Tanzanian seven-year Treasury bond auction on Wednesday went unsold after the central bank rejected all bids on offer. The Bank of Tanzania had offered 20 billion shillings of the fixed-rate Treasury bonds with an 10.08 percent coupon. It received a total of 26 bids worth 26.155 billion, but did not sell any bonds. Bids ranged from 70.0000 to 85.6194 shillings.
One analyst said the rising inflation rate and a liquidity squeeze in the market could explain the high yields demanded by Tanzanian investors for government securities as well as the central bank's reluctance to borrow money at high costs.
"The bid prices quoted by investors for the bond at the auction show that they are looking for yields of up to 15 percent," Moremi Marwa, CEO of Tanzania Securities Limited (TSL) told Reuters.
"There is a liquidity squeeze in the market and the main investors in government securities, which are pension funds, commercial banks and some insurance companies, are expecting returns of above the inflation rate."
Tanzania's year-on-year inflation rate jumped to 13 percent in July from 10.90 percent in the previous month on higher food and fuel prices.
"The core issue is the cost of borrowing for the government," Marwa said.
"Tanzania could also be taking a cue from Europe where investors are sceptical of (lending) money to the government. Governments are no longer risk-free, so investors are demanding a premium for the money they put in treasury bonds and bills." (Reporting by Fumbuka Ng'wanakilala; Editing by Yara Bayoumy and Toby Chopra)
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