No plans for over ten-year bonds, declares central bank

YIELDS on investment in government securities depend on various factors including forces in
the domestic and international markets, the Central Bank Governor, Prof Benno Ndulu said in
Dar es Salaam recently.

The central bank chief was reacting to a statement by the capital market stakeholders that there is a need for the government to issue a long term maturity instruments to act as the benchmark for corporate long term bonds.

Prof Ndulu said at present the government has no plans to issue bonds with maturity rates of more than 10 years, saying long term bonds borrowing was “costly” to the government.

“The current 10-year bonds have proved to be expensive for the government borrowing. “As you know the longer the maturity the higher the yield rates,” Prof Ndulu told the ‘Daily News’ in an interview.

He said the current yield rate for 10 years bond of 12.13 per cent would not be a good benchmark for corporate bonds as the yields are high.

“These are not good benchmark for corporate bonds…as the costs are high.” The 10 years bond yield rate at one point reached 20 per cent, but due to completion dropped to current rate of 12.13 per cent.

But that does not mean that the private sector could not issued long-term maturity bond of up to 20 years, the governor said; adding the capital markets could use data from Kenya, which has a 30 years bond to set the benchmark.

Prof Ndulu said the Treasury could be in a better position to say if there were plans to issue a long term bond of over 10 years, because “we (the central bank) are facilitate the bonds market,” on the behalf of the government.

The Chairman of the Governing Council of the Dar es Salaam Stock Exchange (DSE), Mr Yacoub Kidula, said they hoped that the government would consider issuing long term bonds for up to 20 years.

“We hope the government will consider issuing a long term instrument, so as to extend the yield curve and create a benchmark for longer term corporate bonds,” Mr Kidula said, during the listing of Bank M’s 3bn/- bond.

The DSE urged that with longer term instruments would increase the bourse vibrancy, because only few big companies have listed their securities.

“And for this reason the bonds market in not well developed,” Mr Kidula said. The first corporate bond was listed at DSE in 1999, while the longest has the maturity of seven years. The ten year government instruments are trading as well.


By ABDUEL ELINAZA, 7th March 2011