Minister of Finance Peggy Serame and BoB Governor Cornelius Dekop
August auction results show under-allocation at the longer end
Confident gov’t will raise the required funding
The Bank of Botswana (BoB) says it has not yet seen a trend that shows a declining appetite for “our bonds”. Lesego Moseki, Director of the Financial Market Department, said the bank is still quite optimistic that the government will be able to raise the funding it requires from the domestic capital markets.
Moseki addressed a question during the Monetary Policy Committee’s (MPC) rate decision announcement, regarding the bank's view on the market's capacity, particularly regarding longer-dated bonds.
The market entered the bond auction on August 23, 2024, anticipating a significant under-allocation for longer-dated notes or a notable increase in rates, driven by what investors argue is BoB’s reluctance to pay higher rates for longer-dated instruments, combined with the market bidding at elevated rates for those tenors.
BoB sought to raise P3.8 billion through the auction, offering P2 billion in longer-dated bonds and P1.8 billion in treasury bills (T-bills).
Auction results shared by Kgori Capital, a local investment firm, indicate that 59% of the total P3.8 billion was allocated, with an under-allocation observed at the longer end of the curve.
Analysis by Kgori Capital
P600 million was offered for the 3-year note, P600 million for the 7-year note, and P800 million for the 19-year note. Results of the auction show that the BoB raised P92 million through the 3-year note, P30 million through the 7-year note, and P308 million through the 19-year note. Yields increased by 125 basis points (bps), 25 bps, and 33 bps, respectively, according to Kgori Capital calculations.
Auction results show that the highest bid averaged 14%, reflecting that investors price for value on longer-dated bonds. Bankers say the shorter-end reprices because the demand on the shorter end is very high and banks essentially price to win; this will still meet their Liquid Asset Ratios (LAR) as they are considered liquid instruments and get a better return than the 7-day Bank of Botswana Certificates (BoBCs).
Kgori Capital's analysis indicates that the 3-month and 6-month T-bills were fully allocated, with P1 billion and P800 million raised, respectively. Yields for the 3-month T-bill declined by 20 basis points (bps), while the 6-month T-bill saw an increase of 9 bps.
Kgori Capital previously showed that the bond auction for July was under-allotted, with the allotment ratio falling to 91%. The government raised P2.638 billion out of the P2.9 billion offered. The 3-month T-bill, 3-year and 7-year bonds were under-allotted whereas the 6-month and 12-month T-bills along with the 19-year bond were over-allotted.
“From time to time, you will see over-allocation and under-allocation at specific bonds,” Moseki said.
“Over the past two years, we have seen significant demand for our bonds. Demand is driven by the investor community particularly institutional investors which are pension funds.”
At the beginning of the fiscal year, the government sets out its borrowing strategy. As at this time, Moseki said “We are still on target to meet the government borrowing plan for the fiscal year 2024/25”.
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