According to latest information from Simonis Storm Securities, the SSS Namibian Government Bond Total Return Index (NGBTRI) registered a 6.2% ytd gain to the 30th of April 2018.
The firm also said that bonds in the 12-years plus category continue to register higher returns of 9.9% ytd ending 30th of April followed by bonds in the 7 to 12 years category, which gained by 6.1% during the same period.
Says the firm, “Inflation in Namibia and South Africa is currently on a lower trajectory thus drawing more attraction in the bond market as real returns remain favourable at 5.0% and 4.5%, respectively for 10 year notes.”
“Furthermore, Bank of Namibia released the borrowing plan for 2018/19, which includes the introduction of a new 273-days T-bill that will be issued in September 2018.”
The firm notes that two new bonds were also introduced; a fixed-rate bond (GC23) that will be issued on 21 June 2018 and an inflation-linked bond (GI33) that will be issued on 28 June 2018.
“Further details pertaining to these bonds will be disseminated in due course, subsequent to their registration. Also take note that the GC22 will be off-the-run from June 2018,” said the firm.
Meanwhile, Simonis Storm has taken note of positive economic and political events priced in for South Africa, leaving no handles to prevent a weakening Rand and rising bonds yields simultaneously.
“The Namibia yield curve has increased by 14.7bps on average in April, correcting from a substantial level of strength in bonds led by the Ramaphosa victory in the 1Q2018. In addition, inflation has been on a downward spiral, recording a 3.5% increase in March 2018. This has resulted in more attractive real returns (4.0%) for investors as a relative play against advanced economies.” ?
“Namibian public debt stood at N$49.1bn in April, reflecting a slight increase of 1.0% from the prior month. BON cited that the increase was reflected in both Treasury Bills (TBs) and Internal Registered Stock (IRS), which rose by 1.3% m-o-m and 0.7% m-o-m to N$19.7bn and N$29.4bn, respectively. On an annual basis, domestic debt rose by 16.9% due to the issuance of both TBs and IRS, which rose by 28.8% and 10.1%, respectively. Government debt continues to increase at a faster rate than the economy. This is clearly worrisome as there is increasing evidence of debt been rolled rather than stimulating economic growth,” it says. ?
This is how SSS views Namibia’s position:
The firm observed a parallel upward shift in the Namibian yield curve at the end of April compared to the moderately flatter yield curve observed in March 2018.
“The yield curve moved upwards by 14.7bps on average in April 2018. The benchmark yields have also increased in April, resulting in an upward shift in the Nam bond yields. Yields on the TBs and short dated maturities have been suppressed due to high demand especially on the 12 month TBs, (evident in the bid to cover ratios (Figure 5). There is a high appetite for maturities ranging from the TBs to GC27, but the longer end (GC30 to GC45) remains reticent.”
“The increase in demand for certain maturities can be attributed to the increase in banking liquidity to N$3.3bn at the end of April 2018 compared to a N$2.2bn in the prior year. Furthermore, we have observed an increase in BoN bills to N$2.3bn at the end of April (Figure 3). We are of the view that the high liquidity position has partly fuelled appetite for TBs and in turn led to lower TB yields more recently,” says SSS.
Money supply (M2) which is notes and coins in circulation plus short-term deposits (money market funds), has increased since the end of 2017 albeit at a slow pace.
The annual growth rate in M2 stood at 7.1% at the end of March 2018, higher than 6.5% recorded in February 2018.
“We are concerned that the maturity profile of government bonds has high debt saturated in three TB maturities (Figure 7). About 38% (N$18.2bn) of the total domestic debt (N$47.6bn) is concentrated in the 6 to 12-month TB maturities. One solution that the government can pursue is to create attractive schemes towards the longer end of the curve to avoid high concentration on the shorter end,” says SSS.
The spreads between South Africa and Namibia bonds have increased slightly in April and SSS believes this was necessary as it reflects the reality of the higher sovereign risk in Namibia.
Says SSS, “The spread between the R186 and the GC27 stood at 191bps in April compared to 194bps in March. With the current recession prevailing in Namibia we recommend short duration for bonds.”