Bond yields to remain firm over short-term
Ahead of government raising N$914 million instead of its intended amount of N$1 billion during the last bond auction, Simonis Storm Securities analysts predict that bond yields will remain firm over the short term with global and regional risks looming over the medium to long term that could elevate bond yields again.
The brokerage firm reported that during the special auction at the end of October, they observed a high uptake on the short to medium dated bonds.
Said economist Indileni Nanghonga in the latest fixed income and economics report, “For the YTD ending on the 05th of November, the SSS Namibian Government Bond Total Return Index registered a return of 6.5%. The short-dated bond category (1-4 years) remains the biggest gainer YTD, recording a return of 8.2%.”
Nanghonga, however, noted that the liquidity position in Namibia remains volatile but geared upwards.
The high liquidity position coupled with the increase in local asset requirements have increased the demand for fixed income instruments, she said.
“Our view is that bond yields will remain firm over the short term with global and regional risks looming over the medium to long term that could elevate bond yields again,” she said.
Meanwhile, in light of the recently tabled mid-term budget review, Simonis Storm said as expected there were no adjustments in the projected expenditure.
“The Minister reckoned that Namibia’s public finance faces triple challenges which are: 1) Consolidation; 2) Lower economic growth and 3) High unemployment. We still expect revenue to undershoot over the 2018/19 financial period on the back of the above-highlighted challenges.”
“Our main concern is the elevated debt level and the debt servicing costs as this will put pressure on the fiscus. We expect debt to increase to N$107.0 billion and debt to GDP to 51.9% by the end of 2020/21.”
“Escalating debt levels for a small open economy with little revenue generation capacity is a recipe for disaster. Coupled with this, the rating agencies are also closely monitoring the debt levels. Note that the key measures for a positive rating are steady fiscal consolidation, public debt stabilization objectives and the prospect of a return to a moderate growth outlook,” the firm said.