Treasury Bill auctions make a comeback, Zimbabwe prepares infrastructure bond

Reserve Bank of Zimbabwe
New market: RBZ hoping to attract interest in TB auctions

Reserve Bank of Zimbabwe has carried out its first public Treasury Bill (TB) auction in years, hoping to gauge appetite for the paper while preparing to issue a long-term infrastructure bond.

Ncube announced announced a plan to fully relaunch TB auctions when he launched the Transitional Stabilisation Programme last October, steps he said were needed to deepen the country’s financial markets, dominated by stocks. The last major Treasury Bill auctions were in 2008, before a few more failed attempts were made in 2012 to revive the TB market.

According to Ncube, the auction was important in helping Treasury work out the yield curve as it prepares to issue new instruments, including a long term bond to fund rehabilitation of water and sanitation infrastructure. According to Ncube, five banks and six other financial institutions participated in the test TB auction.

“The purpose of the auction was to test the market in terms of TB appetite and to also enable us to work out a yield curve,” Ncube said. “This is already telling us about the shape of the yield curve and where long term interest rates are going so that when we issue this infrastructure bond, we have an idea as to the kind of pricing we should accept when the market responds to this long term infrastructure bond.”

In the Tuesday auction, Treasury offered a 91-day bill at 16.5%, a 180-day TB at 19.6% and a 365-day TB at 17%. A total $80 million was on offer in the auction. The yields are below inflation, which may dampen interest at current levels, at a time Mthuli is desperate to give central bank more tools to deal with monetary policy.

Ncube said government is still working out how much it would need to raise via the infrastructure bond.

“Why do we prefer this (bond) as opposed to just mere borrowing or using Treasury sources? Because this is the secondary advantage of deepening our capital markets. If you look at it, we don’t have enough instruments in the financial sector for investors to spread their risk around,” Ncube said. “So, by issuing something like an infrastructure bond, we are adding a vital instrument into the capital market.”

Government issues TBs, through central bank, to borrow money from the local market, while at the same time regulating the amount of money in circulation.