Lesego Moseki, Director of the Financial Market Department (BoB)
P1.763 billion raised out of P2.7 billion auctioned
Under-allocation on the longer end
Yields tick up
At the recent bond auction on September 25th, the government raised P1.763 billion out of P2.7 billion offered, as demand for longer-dated instruments remained muted.
Auction results indicate that the government offered P700 million in treasury bills (t-bills) and P2 billion in bonds, continuing to increase the volume of longer-term instruments. Notably, the offers for treasury bills are now lower than those for longer-dated bonds.
The government offered P350 million each in 3-month and 6-month treasury bills, raising P170 million and P520 million, respectively. This marked a shortfall of P10 million in the T-bills.
In the longer-term offerings, the government offered P600 million for a 5-year note, P600 million for an 11-year note, and P800 million for a 19-year note. However, the total raised from these longer-dated instruments was P1.073 billion, falling short by P927 million. All three instruments were underallocated.
The under-allocation of longer-dated instruments has been notable, as investors say the Bank of Botswana is reluctant to offer higher rates for these maturities. This hesitation comes amid market bids for longer tenors that remain elevated. In the last auction for August, BoB sought to raise P3.8 billion, offering P2 billion in longer-dated bonds and P1.8 billion in treasury bills (T-bills).
However, the bank raised only P1.8 billion through T-bills, compared to P430 million for bonds. An analysis of the August auction results shared by Kgori Capital, a local investment firm, revealed that 59% of the total P3.8 billion was allocated, with under-allocation noted at the longer end of the curve.
As investors seek value, the government is positioned as a price taker in the bond market. Stop-out yields—the highest yield at which a bond auction clears—have been increasing due to the government's funding needs. The 19-year note cleared at 9.25%, an increase from 8.59% in August.
The stop-out yield for the 11-year note closed at 8.23%, up from 7.75% in June. Meanwhile, the 5-year note rose from 6.05% in May to 7.95% in September. According to the auction results, the highest bid rates received were 14% for both the 5-year and 11-year notes, while the 19-year note received a bid rate of 13.25%.
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