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Investors Continue To Channel Capital To Govt’s Fixed Income Assets

By:Nghiinomenwa-vali Erastus
Between 1 December 2022 and 6 January 2023, investors have offered N$9,7 billion to the government in exchange for treasury bills (TBs), the Bank of Namibia TB Auction results for the 01, 08, 15, 22 December 2022, and 05 January 2023 show.
The government was, however, only able to borrow N$5,7 billion, resulting in an over-subscription of N$4,01 billion which highlights the appetite for short-term financial assets.
This also means that the government borrowed N$5,7 billion from the market in just five weeks.
The TBs are short-term financial assets issued by the central bank on behalf of the government as a debt instrument for less than a year.
The government uses them to borrow money from the market, and they are sold at a discount to the par value with a promise of full settlement at maturity.
Investors thirst for these short-term assets for different reasons, for the banks and some investors who require a certain level of liquidity need them to meet their liquidity level/reserves.
This is because TBs are considered to be cash equivalent due to their flexible nature to be converted into cashin a short period.
Some investors such as retailer investors find them affordable because buying a unit in a specific TB costs N$10000.
Others are taking advantage of the government budget deficit to make a killing from interest payments as the TB is sold at a discount.
For this, investors were willing to invest/lend their N$9,7 billion to the government for three months, nine months or 11 months.
Government only wanted N$2,8 billion for the period under review (14, 22 December, and 6 January 2023) through 91-Day, 182-Day, 273-Day & 364-Day Treasury Bills.
The biggest over-subscription was on 5 January 2023 through a 364-day TB auction held where government wanted only N$550 million.However, investors submitted 52 bids at the auction valued at N$1,7 billion over-subscription of N$1,13 billion and only seven bids were successful.
Another big over-subscription for this period was on 22 December, when government invited investors to bid for the 273-day TBs.
Government wanted to borrow N$600 million, however, investors submitted 72 bids that were valued at N$1,6 billion, resulting in an over-subscription of N$1,03 billion that also wanted a piece of the 273-tenor TBs.
On 15 December 2022, government wanted N$550 million from the market through the 273-day tenor TBs.During the auction, 46 bids were received worth N$1,2 billion ready for investment, recording an over-subscription of N$611,8 million.
The over-subscription of TBs shows that the Namibian economy is quite liquid, and capital is readily available for investment with a price of better rewards and a conducive environment.
It also shows that there is a high appetite for government fixed-income instruments which may symbolise conservatism from investors as they opt for safety.
The capital watch did not get placed in any of the TBs between 1 December 2022 and 5 January 2023 and can still get allotted as the government keeps borrowing to fill the budget holes.
In his mid-year budget review for FY 2022/23, the finance minister Iipumbu Shiimi indicated that the budget deficit is estimated at about N$10.6 billion.
Shiimi said this is because the borrowing requirement for the financial year has been extended to account for other borrowing-related financing activities as well as expenditures outside the budget.
Overall, these adjustments brought the total borrowing requirement for FY 2022/23 to about N$19.0 billion.
The next treasury bills auction is on 12 January 2023, where the government seeks to borrow N$1,080 billion (N$530 million through 187-Day and N$550 million 237-Day TBs).Email:

Nghiinomenwa-vali Erastus

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