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TBs appetite dwindles on negative real returns

An investment analyst has said there has been reduced appetite for Treasury Bills (TBs) as yields remain below inflation levels where they are getting negative real returns.

The TBs yields as of last week ranged from 6.94 percent to 9.23 percent, according to the auction results from the Reserve Bank of Malawi (RBM) posted on its website (www.rbm.mw).

Yet, the Zomba-based National Statistical Office (NSO) put the January inflation at 10.3 percent. There are signs that the figure could pick up largely due to increases in non-food inflation.

Malawi’s auction for TBs—a paperless short-term borrowing instrument issued by RBM—are held almost every week to raise funds to finance maturing government debt currently on the rise.

Chief executive officer at the Blantyre-based Alliance Capital Limited James Chikavu Nyirenda wondered on Wednesday why investors continue to bid at levels that are not profitable.

“The highly reduced level of interest at last week’s auction could indicate a deliberate move away from the TBs in search of other investment options,” suggested Nyirenda.

The RBM suspended the selling of TBs for the whole of January 2012 and only resumed auctions on February 21 2012.

Analysts said this was a move to ensure they shift attention of investors to the K30 billion bond the central bank issued on December 23 2011 aimed at restructuring government’s domestic debt and develop a benchmark yield curve.

But since the country’s largest ever bond with maturities ranging from two to five years, was opened, the response from the investors has been unattractive.

The average yields range from 12 percent to 16 percent, according to the RBM.

During TBs auction held on February 28, there was, however, a slight oversubscription of K3.55 billion against an announced value of K3.07 billion.

But the authorities allotted K3.11 billion with average yields ranging from 6.94 percent for the 91 days tenor to 9.23 percent for the 362 days tenor.

Overall, yields experienced an upturn from 6.02 percent registered in the previous week to 6.94 percent on the 91 days paper and 9.04 percent to 9.23 percent on the 362 days paper which is usually highly subscribed, according to auction results.

The 182 days paper, however, saw a decline from 7.95 percent to 7.21 percent with K1 billion allotted at the end of the auction, the results show.

Since time immemorial, Malawi has heavily relied on short-term borrowing on the market to meet its obligations.

But analysts say this is an expensive exercise as, in effect, interest tend to rise leading to increased borrowing costs and crowding out of the private sector which cannot compete with government.

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