Accessing Botswana’s bond market

Botswana's sovereign bond market has been garnering significant investor attention, with a notable trend of strengthening bonds over the sovereign market. Onalethata Letlole, Sales Manager of FX and Money Markets at Stanbic Bank Botswana, shed light on the factors behind this robust performance. Since the last quarter of 2023, Botswana has observed a gradual decrease in the government bond yield curve. A comparison of T-bills and government bonds from October last year to the latest auction in February revealed a general decrease in yields across various maturities. While shorter-term bonds experienced a significant decline in yields, longer-term bonds saw a marginal decrease. For instance, the three-month T-bill currently sits at 2.83% compared to the 5.38-5.39% range in October 2023. On the other hand, the W-015 bond with a 20-year maturity trades at 8.19%, showcasing a slight drop from 8.71%. The strong bet on the short-term outlook can be attributed to an increase in liquidity in the market, leading to oversubscribed government auctions and fully allocated issuances. Asset managers play a crucial role in buying and holding these assets until maturity, contributing to a one-way trading pattern where the government issues bonds and asset managers acquire them. To manage this demand, the government has ramped up auction frequency, shifting from quarterly to monthly auctions since October 2020. Moreover, switch auctions have been introduced to maintain market equilibrium. Looking ahead, the sustainability of this trend hinges on government actions to meet market demand and absorb liquidity. Recent regulatory changes requiring pension funds to invest onshore and the government's plan to tap into domestic borrowing are expected to further stimulate market activity. As Botswana's bond market continues to evolve, stakeholders anticipate a flat to slightly downward yield curve influenced by the upcoming government's bond program. The market's evolution will depend on the capacity of new instruments to absorb liquidity and alleviate pressure on government bonds, potentially leading to an uptick in yields.