Tanzania: Treasury bills still draw huge interest

DESPITE the soaring inflation rate and the alarming economic turbulence hitting some Western countries, the two-year Treasury bond maturities continued to attract massive investments, leading to over subscription, the auction summary has revealed.

According to the Bank of Tanzania (BoT) treasury bonds auction held last week, the total amount tendered jumped to 57.8bn/- against 25bn/- offered at 9.6 per cent weighted average yield to maturity.

Experts attribute the overly subscription as a clear indication that investors were awash with resources which do not match with the investment opportunities. The rising inflation rate is one of the major drivers which contribute greatly to eroding people's purchasing power as well as blocking realisation of investment plans.

The BoT economic bulletin for the quarter ending June this year shows that the average annual headline inflation rose to 9.8 per cent, from 7.3 per cent recorded in the preceding quarter. The increase was mainly attributed to the rise in both food and energy prices.

Although it is still the lowest in comparison with Uganda which has the highest rate above 20 per cent and Kenya with almost 17 per cent, the inflation rate for the year ended August reached 14.1 per cent compared to 13 per cent in July, which was the highest record in two years time.

Economists have warned that the double digit situation is likely to damage the economy if left untamed. Also the effects of the financial crisis currently hitting some western countries are not to be overlooked.

The Bank report pointed further a decline of all money market interest rates from the rates recorded at the end of the preceding quarter, with the exception of the five and seven-year bonds. The decline in the money market rates is a reflection of higher liquidity within banks.

However, when compared with the rates recorded in the corresponding period in 2010, generally they are on the higher side. During the quarter ending June 2011, demand for Treasury bonds was 748.2bn/- compared to 371bn/-recorded in the preceding quarter. This indicates investors’ preference for holding longer term government securities.

This demand was the highest recorded since the commencement of the Treasury bonds market in the country. Commercial banks and pension funds were the dominant participants in the Treasury bonds market.