Examining Tanzania's bond strategy for H1 2024/25

The Bank of Tanzania's recent issuance calendar for the first half of FY 2024/25 has sparked discussions and raised eyebrows among investors and analysts. While the calendar includes short-term treasury bills, the central focus appears to be on reopening existing bonds with maturities ranging from 5 to 25 years. To delve deeper into this strategy and its implications on the market, CNBC Africa interviewed Imani Muhingo, the Head of Research & Financial Analytics at Alpha Capital, providing valuable insights from Dar es Salaam, Tanzania. The market analysis indicates a significant shift from previous years' strategies. Since February of this year, the central bank has altered its approach to bond issuance due to the underperformance of last year's calendar. Investors have shown a preference for long-term bonds with higher coupon rates, a trend that has been consistent since 2022 when coupon rates were adjusted. Consequently, the central bank has opted to reopen initial bonds with attractive coupon rates to align with market preferences. Moreover, the concentration of maturity has shifted, with most recent treasury bond auctions focusing on longer-term maturities. This change in strategy aims to manage liquidity in the banking sector, balance budgetary operations, and address the ongoing pressure on the US dollar. The adjustment in the issuance calendar to a six-month period, rather than the traditional one-year calendar, is a strategic move to synchronize bond issuance with the central bank's monetary policy objectives. By issuing long-term bonds with competitive rates, the central bank seeks to maintain investor interest while retaining the flexibility to adjust rates when needed. The calendar's alignment with both monetary policy and government budgetary operations underscores a holistic approach to managing the country's economic landscape while mitigating risks. Despite the favorable economic conditions in Tanzania, investing in these securities is not without risks. Inflation rates have remained stable at around 3-4% for the past two years, nearing the lower end of the 5% target. However, the potential risk lies in interest rate movements, especially since the central bank recently transitioned to an interest rate-based monetary policy framework. With the next policy announcement scheduled for July 4th, investors are cautious of drastic interest rate fluctuations that could impact bond investments. As Tanzania navigates through its bond issuance strategy for the first half of FY 2024/25, stakeholders will closely monitor economic indicators and policy decisions to assess the potential implications on investment portfolios and market dynamics.