Zimbabwe’s first Treasury Bills (TBs) auction in 10 years, carried out last week, has served to highlight that there is a significant demand for the paper in the market.
The Reserve Bank of Zimbabwe (RBZ) last week floated 91-day TBs to “finance Government operations”.
But the main purpose of the TBs was to gauge investor interest ahead of the flotation of bigger infrastructure bonds.
The TBs were offered to the various local financial institutions, which are already believed to hold the largest quantum of previously issued TBs.
Last week’s $30 million Treasury Bills tender attracted bids worth $132,75 million at the close of the tender last Thursday.
The indicated high demand for TBs among financial players, will provide a sign ahead of Government’s plans to issue out an Infrastructure Bond later this year.
“Treasury will be issuing a Vaka/Yaka Zimbabwe Infrastructure Bond during the second half of the year, to mobilise private sector funding for some of our budgeted ongoing priority projects,” said Finance and Economic Development Minister Mthuli Ncube in the Mid Term Fiscal Policy Review Statement on Thursday last week.
But the high level of interest by the market in TBs, is not unexpected as financial market watchers have noted that banks and other financial players have shown a preference for TBs in so far as they earn steady interest, are deemed to be more secure and are easier to get as opposed to lending out to the private sector.
“There is a clear strategic shift towards TBs within the banking sector given the tax-free interest spread and prescribed asset status conferred on the instruments; this seems exacerbated by the perceived lack of quality borrowers despite improved high-level macro indicators on the loan book side,” said IH Securities in an earlier research note.
“Effectively, this equates to a crowding out effect of private sector borrowers and we are already seeing small-to-medium enterprises sifting out of commercial bank loan books and being forced to borrow in the microfinance institutions (MFI) space where interest rates will be higher and tenures shorter.”
The highest interest rate offered on last week’s TBs was 40 percent, while the lowest was 15 percent, with the average rate being 15,6 percent.
The bills’ had special features, which include prescribed and liquid asset status, tax exemption and acceptability as collateral for overnight accommodation at the RBZ.
Treasury placed a moratorium on the issuance of TBs last year after concerns that unchecked issuances were beginning to flood the market, raising concerns of possible defaults. But Treasury has said this is a thing of the past.
“Going forward, Government borrowings for Budget purposes will observe the new TBs Auction Framework in order to promote transparency and the rebuilding of market confidence,” said the Finance Minister.