Market shows confindence in government securities

Higher yields and political certainty has heightened the market’s confidence on government securities with recent applications on treasury

bills (T-bills) being oversubscribed, following weeks of under subscription ahead of the May 20 Tripartite Elections.

Reserve Bank of Malawi (RBM) figures show that after the elections, T-bills auctions are being oversubscribed with applicants scrambling for the securities in all the three tenors.

During the T-bills auction held last week, authorities raised K6 billion against an announced amount of K6 billion while total applications stood at K8.2 billion, representing a 35.9 percent oversubscription.

According to the figures, the 91-day tenor increased to 21.27 percent, the 182-day rate inched upwards to 26.63 percent while the 364-days rate increased to 26.59 percent.

Contrast to the T-bills auction held on April 29, authorities raised only K1.97 billion against an announced amount of K10 billion with total applications at K3.13 billion, representing an under-subscription of 68.7 percent.

Commenting on the trend, a Blantyre-based investment analyst attributed the oversubscriptions to confidence in the market due to political certainty and the higher returns on the yields.

“The political environment has recently stabilised after the post elections standoff. This has given some confidence to investors in the economy and have therefore decided to invest in securities.

“The T-bills yields have also recently risen above inflation rate therefore giving investors a positive real return. Inflation is also projected to decline in the short-term which has also given more confidence to the investors,” said the analyst who preferred anonymity.

During the political impasse after the May 20 elections, economists and businesses warned that the standoff would generate negative effects on business environment and investor confidence.

The impasse forced some businesses to shutdown against a background of political uncertainty.

Inflation rate, according to National Statistical Office (NSO) fell by 1.3 percentage points to 22.6 percent in May and the RBM projects that it will further fall to 16 percent in December this year.

The International Monetary Fund (IMF) targets a single digit inflation rate of 9.7 percent by end of this year.

Analysts have, however, warned that the increasing T-bills rate which apparently is a reflection of government insatiable appetite for borrowing, may filter to higher commercial bank interest rates if unchecked.

Currently, interest rates are hovering at above 40 percent in most of the commercial banks.