Investors shun long term govt securities
Investors are shunning government long-term securities for short term ones, which is an indication that they are uncertain about the future, says experts.
According to the Nico Asset Managers weekly market updates for the past two weeks, market players have been interested in the short term securities.
During the treasury bills (T-bills) auction held on January 2, government only managed to raise K13.52 million down from K956 million raised in the previous week.
The report also indicates that during the T-bills auction, interest rates increased on the 91 days tenor from 20.11 percent to 24.33 percent while it decreased on the 182 days tenor to 24.71 percent from 24.78 percent.
The changes in the interest rates are certainly an indication that investors prefer the 91 days treasury bills thereby pushing their interest rates up, while on the other hand shun the longer term treasury bills, the 182 days tenor, thereby, causing a drop in their interest rates.
Further, the market financial updates for the past two weeks indicate that no treasury bills were applied for on the 364 days tenor.
Explaining this money market behaviour in an interview on Monday, market analyst James Chikavu Nyirenda said the behaviour is mainly due to an uncertain expectation in future interest rates.
“Investors are uncertain about the future and do not want to lock up their investment in long-term securities. Investors are expecting an increase in interest rates, that is, why they are shunning the long term securities in preference to shorter term,” he said.
Nyirenda, however, said he did not expect a major movement in interest rates bearing in mind that foreign exchange reserves would soon stabilise, but he said for the sake of investment, he would prefer short term securities for now.
He further explained that with donor inflows and the tobacco season around the corner, the local currency would finally stabilise eventually stabilising inflation.
Nyirenda argued that with a stable inflation, the Reserve Bank of Malawi (RBM) would ease on its inflation targeting monetary policy through interest rates adjustments.
Meanwhile, interbank lending has registered an upsurge in the past two weeks driving its interest rates up above the discount window borrowing of 25 percent.
In the week ending January 4, for instance, discount window borrowing averaged K7.5 billion per day up from zero while borrowing between banks averaged K6.6 billion per day up from K5.5 billion per day in the previous week.
Interest rates on the interbank borrowing for the week surged to 25.8 percent from 25.3 percent which is marginally above the discount window borrowing of 25 percent.
