Underlining healthy investor demand for government securities, all Treasury bonds auctioned thus far in the FY 2021/21 (July 2021 to June 2022) have been oversubscribed save for the Tap sale earlier in the cycle.
Favourable subscription may be linked to the availability of excess funds amid limited investment outlets during this pandemic. Moreover, elevated credit and investment risks have elevated preference for low-risk investments and in the instance of government securities ‘risk-free’ investment.
The central bank has thus far maintained an above target absorption of bids received affirming the government’s elevated appetite for debt financing. However, the central bank has been keen on rejecting expensive bids as affirmed by the average 79% acceptance rate in the auctions.
To underscore investors’ expensive bidding, the weighted average yield on accepted bids was on average 15bps above the market rate prior to the bond sale. This may reflect the central bank’s willingness to accept more expensive bids given the government’s pressing need for funds more so on longer maturities. Overall, expectations of higher interest rates, albeit more modest given healthy demand, stands.
It seems that multiple bond auctions will continue to prove more successful than single bond issues given the attraction from investors with varying investment horizons. We are likely to see further multiple bond issues for the remainder of the cycle.