T-Bill yields experienced a substantial decline
Bifm notes pressure on money market yield
StanChart calls for market innovation
The results of the government bond auctions have revealed a notable trend in the financial market with respect to liquidity. For instance, the 12-month Treasury Bill (T-Bill) yield declined by 185 basis points as per the January auction according to the Bank of Botswana (BoB) data. This development has sparked discussions among experts who assert that it signals an influx of liquidity in search of investment opportunities.
Galeboi Sennanyana, the Head of Treasury Markets at Standard Chartered Bank (StanChart) argued that in search of investment vehicles, market participants are driving down the yield curve.
For other bankers, this could also be because of one (or a handful) of players. Banks traditionally play on the short end of the curve for their liquid asset requirements. Banking treasurers said customer asset growth takes time to materialise and banks want to park their cash in an asset that’s a bit higher yielding like the 12 months T-Bill.
Accordingly, the drop could be driven by a bank that got a significant bump in liquidity recently and is driving down yields — as long as they remain above the Monetary Policy Rate (MoPR).
The Monetary Policy Committee (MPC) reduced the MoPR by 25 basis points to the current 2.40% in December 2023. As a result, the T-Bill offers a slightly more attractive rate of return (3.4%) than the Bank of Botswana Certificates (BoBC) of 2.4% in the case of Liquidity-at-Risk (LAR) considerations.
Botswana Insurance Fund Management (Bifm) observed that Botswana Treasury Bills (T-Bills) reported a marginal decline in yields leading to the final T-Bill auction of the year. As a result of these developments, in its Q4 2023 factsheet, the country’s largest fund manager noted continued pressure on money market yields offered by commercial banks and non-bank institutions due to the lower interest rate environment.
Bifm indicated that banking liquidity remained strong over Q4 2023, with December liquidity ending at P3.1 billion. The fund manager attributed this to the increased end-of-year activities which resulted in commercial banks maintaining higher liquid assets to address the festive liquidity demands.
In addition, BoB explained that the increased market liquidity was also supported mainly by government spending. Accordingly, BoB said outstanding BoBCs amounted to P5.1 billion in December 2023, an increase from P3.2 billion in December 2022, due to an increase in liquidity resulting mainly from government spending.
With the expansionary budget announced in February 2024, BoB warned that liquidity is expected to increase further.
The repatriation of pension funds to align with the new pension fund rules has also played a role in this liquidity. Following the changes in the Retirement Funds Act (2022), the pensions’ domestic investment limit is being increased up to 50% of asset values in a gradual approach over five years (until December 2027).
Botswana’s Economic and Financial Statistics for December 2023 suggest that a chunk of money has been flowing into Botswana given the reduction in composition of offshore investments. Offshore investments declined from 63.4% (P82.7 billion) in June 2023 to 58.5% (P78.59 billion) in November 2023. So pension fund managers have already met their quota for December 2024. They can still chase higher-yielding assets offshore and repatriate more funds closer to December.
With increased liquidity, Sennanyana said this calls for this market to be innovative as these funds are coming through, especially with products that will protect the pensioners’ value.
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