Treasury bills and bonds are debt instruments issued by governments in exchange for public funds borrowed. Treasury bills and Treasury bonds are auctioned in the primary market in accordance with the Bank of Tanzania's issuance calendar, using competitive and non-competitive tender systems, and are continuously sold and purchased in the secondary markets. Bidding in the auction follows multiple pricing models, which means that bidders can submit multiple bids for each maturity at different prices. The auctions are based on the government's issuance plan for the fiscal year. The Bank of Tanzania publishes the yearly issuance calendar based on the issuance plan to assist investors in planning their investments.
Treasury bills are short-term debt securities that mature within a year. They are typically quoted at a discount, which means that the price paid today is less than 100/=, and the investor is paid 100/= at maturity. Treasury bills have a minimum bid of TZS 500,000. (Five Hundred Thousand Tanzania Shillings).
The Bank of Tanzania issues Treasury bills with maturities of 35, 91, 182, and 364 days.
Treasury bonds are long-term debt securities issued by the government to fund government projects, typically development projects. The Bank of Tanzania issues Treasury bonds with maturities of 2, 5, 7, 10, 15, 20, and 25 years. They have a fixed interest rate (coupon). Treasury bonds have a minimum bid of TZS 1,000,000. (One Million Tanzania Shilling). The prices quoted can be Premium, Par, or Discount. The current coupon rates on Treasury bonds are as follows:
|
Years
|
2 |
5 |
7 |
10 |
15 |
20 |
25 |
|
Coupon
|
7.60% |
8.60% |
9.48% |
10.25% |
11.15% |
12.10% |
12.56% |
All residents of East African Community countries are eligible to participate in the government securities auctions.
Categories of Clients include:
- Entities
- Individuals
- Joint
- Minor
Opening of Securities Account
To be able to participate in the Government securities auctions, all investors are supposed to be registered in the Bank of Tanzania Central Depository System (BoT-CDS). The registration is done through the Central Depository Participants (CDPs). CDPs are all banks licensed by the Bank of Tanzania and broker/dealers licensed by CMSA.
Key requirements for Entities registration are:
- Memorandum and Articles of Association (MERMATS),
- Certificate of incorporation,
- Business License,
- Directors colored passport size photographs
- Constitution/charter/Act of establishment
- Tax exemption certificate (if exempted)
- Tax identification number (TIN) certificate
Key requirements for Individuals and Joint registration are:
- Identification proof
- Two Recent colored passport size photograph
- Tax Identification Number (TIN) certificate
Key requirements for Minor registration are:
- Identification proof
- Birth certificate of Minor
- Two passport size photograph of minor and Two of guardian.
- Guardian shall sign across the photograph of the minor.
- Tax Identification Number (TIN) certificate of the Guardian
- In case the Guardian is not a natural parent to the minor, shall submit proof of guardianship
The Bank of Tanzania invites potential investors to tender for respective auctions through issuance of Call for Tender. The Call for Tender is published in the newspapers, normally on Fridays, and in the Bank of Tanzania CDS Web portal. The bidding process starts soon after publication of the Call for Tender, and lasts up to 11:00am on the auction day (normally on Wednesdays).
A client shall fill a bid form when applying to participate in the auctions. The duly completed bid form shall be submitted to the Central Depository Participant’s (CDPs). Subsequently CDPs will capture the bid details in the CDS for online submission to the Bank of Tanzania.
To be able to price the bid, investors are supposed to be following the government securities auctions price trend or utilize the services of financial advisors or rely on their CDPs guidance.
Auction results are released on average, within 1 hour after the closure of bidding process on the auction day. Investors receive their results through CDPs. The Auction Results Summary shows the key information required by investors for decision-making.
Note: Funds are only transferred to BoT after the investor has established to be successful in the particular auction. The funds for government securities are settled on T+1 (Next business day after auction day).
Repurchase Agreements (REPO)
In the process of implementing monetary policy, the Bank uses repo or reverse repo among instruments for liquidity management. A repurchase agreement, (or REPO), is a form of collateralized lending, while a reverse repurchase agreement, (or Reverse REPO), is a form of collateralized borrowing.
Repurchase Agreements (REPO) involves sale of Government securities with an agreement to repurchase the security at a future date, and at an agreed price. REPO is used as a fine tuning instrument for mopping up excess liquidity from the market.
Reverse Repurchase Agreements (Reverse REPO) entails the purchase of securities with a commitment to resell the securities at a future date and at an agreed price for purposes of injecting liquidity in the market.
Inter-Bank Foreign Exchange Market (IFEM) Summary
In June 1994, the Bank established the Inter-bank Foreign Exchange Market (IFEM) as a wholesale market, to allow commercial banks and financial institutions to trade foreign exchange with each other, and hence determine the official exchange rate of the Shilling. The IFEM plays an important role in the determination of the official exchange rate and monetary policy implementation. The Bank participates in the market as a buyer and seller of last resort and it intervenes in the market only to smoothen transitory fluctuations in nominal exchange rate. The number of participating commercial banks in this market currently stands at 37, out of which, 18 transact through Reuters Dealing System. The price mechanism is a two way-quote system, where each participant is obliged to post bid/ask quotes (good for USD 100,000) in order to enhance transparence and reduce speculation in the market.
The main objectives of the IFEM are:
- To allow commercial banks and financial institutions to play an active role in developing markets and instruments to serve their customers,
- To increase the efficiency in the allocation of foreign exchange reserves, thereby facilitating market-determined exchange rates;
- To create a favourable environment for foreign investment, which would, ultimately, pave the way to full liberalization of the capital account; and
- To improve the conduct of monetary policy
