On 25th July the Bank of Botswana held a regular monthly auction of government bonds and treasury bills. The auction aimed to raise P600m in bond issuance and a further P600m (net) in T-Bill issuance (P2600m less P2000m in maturing T-Bills).

Overall, the auction raised P571m in new funds, only 48% of the targeted amount of P1200m. This mainly came from T-Bills, which achieved P470m, or 78% of the targeted amount. Bond issuance was much less successful, with an allotment of only P101m, or 17% of the targeted amount.

Interest rates rose for T-Bills, with the stop-out rate for 3 month T-Bill rising to 5.35%, up from 5.1% at the previous auction. The rate on the two year government bond rose to 6.75%, up from 5.85% when it was last issued two months ago. The rate on the longest government bond (18 years) was largely unchanged at 10.95%.

As is usually the case, the BoB/MoF decided not to let the price vary to clear the market, i.e a much higher interest rate would have been required to sell all of the bonds on offer and raise the targeted issuance amount. Instead, interest rates were capped at “acceptable” but at the cost of not raising all of the funds that the MoF was seeking to finance government spending. The result indicates that the capital market will require further increases in interest rates to finance government’s domestic borrowing needs this financial year.