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Government Bond Total Return Index registers 6.2% year-to-date growth – SSS

Government Bond Total Return Index registers 6.2% year-to-date growth – SSS

The Simonis Storm Securities (SSS) Namibian Government Bond Total Return Index (NGBTRI) registered a 6.2% year-to-date (ytd) gain at the end of April.

According to Indileni Nanghonga, Analyst at SSS, bonds in the 12-years plus category continue to register higher returns of 9.9% ytd ending 30 April followed by bonds in the 7 to 12 years category, which gained by 6.1% during the same period.

Meanwhile, as the GC22 will be off-the-run from June 2018, two new bonds were also introduced; a fixed-rate bond (GC23) that will be issued on 21 June and an inflation-linked bond (GI33) that will be issued on 28 June.

“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,” Nanghonga said.

In observation, Nanghonga said that there is 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 14.7 basis points on average in April 2018. The benchmark yields have also increased in April, resulting in an upward shift in the local bond yields. Yields on the Treasury Bills (TBs) and short dated maturities have been suppressed due to high demand especially on the 12 month TBs. 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 an N$2.2bn in the prior year. Furthermore, we have observed an increase in Bank of Namibia bills to N$2.3 billion at the end of April. 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,” Nanghonga said.

There is concern that the maturity profile of government bonds has high debt saturated in three TB maturities. About 38% (N$18.2 billion) of the total domestic debt (N$47.6 billion) 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. The spreads between South African and Namibian bonds has increased slightly in April and we believe this was necessary as it reflects the reality of the higher sovereign risk in Namibia. The spread between the R186 and the GC27 stood at 191 bps in April compared to 194 bps in March,” Nanghonga said.

In conclusion, with the current recession prevailing in the country, SSS recommends a short duration for bonds.


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