AFRICAN FINANCIAL MARKETS INITIATIVE AN AFRICAN DEVELOPMENT BANK INITIATIVE. African Yield Curves Guidebook

Transcription

1 AFRICAN FINANCIAL MARKETS INITIATIVE AN AFRICAN DEVELOPMENT BANK INITIATIVE African Yield Curves Guidebook December 2016

2

3 Table of Contents List of Abbreviations... 5 Foreword...7 Overview...9 Country Guide Botswana...12 Burundi...14 Central African Economic and Monetary Community (CEMAC)...15 Egypt...17 Ghana...19 Kenya...21 Lesotho...23 Madagascar...25 Malawi...26 Morocco...27 Namibia...29 Nigeria...31 Seychelles...33 South Africa...34 Swaziland...36 Tanzania...38 Tunisia...40 Uganda...42 West African Economic and Monetary Union (WAEMU)...44 Zambia...46 Glossary

4

5 List of Abbreviations ABMDI AfDB AFMI AUT BBG BCEAO BEAC BRVM BVMAC CEMAC CMF CREPMF DSX EAC EGP FIMDA FMDQ GDP ILB KES MAD MSE MTDS NA NDMF NSE OTC S&P SOC T-Bills T-Bonds USD WAEMU African Bond Markets Development Index African Development Bank African Financial Markets Initiative Agence UMOA-Titres Bloomberg Banque Centrale des Etats de l Afrique de l Ouest Banque des Etats de l Afrique Centrale Bourse régionale des valeurs mobilières Bourse des Valeurs Mobilières de l Afrique Centrale Central African Economic and Monetary Community Financial Market Council Conseil Régional de l Epargne Publique et des Marchés Financiers Douala Stock Exchange East African Community Egyptian Pound Financial Markets Dealers Association Financial Market Dealers Quotation Gross Domestic Product Index-Linked Bonds Kenyan Shilling Moroccan Dirham Malawi Stock Exchange Medium-Term Debt Strategy Not Available National Debt Management Framework Nairobi Stock Exchange Over the Counter Standard and Poor s Rating Agency State-Owned Companies Treasury Bills Treasury Bonds The United States Dollar West African Economic and Monetary Union 5

6

7 Foreword The African continent continues to receive an increasing share of international investors attention, despite the recent turmoil in commodity markets and a number of security concerns in certain African countries. Indeed, within Africa, domestic investable capital is growing rapidly and regulators are recognizing the need for local institutional investors to diversify their asset base. According to the IMF, Africa will be the second fastest growing region from now to 2020 as well as the continent experiencing the most rapid rate of urbanization. Currently, Africa is divided into emerging markets economies (in particular South Africa) and frontier markets (e.g. Nigeria, Morocco, Egypt, Kenya, Namibia and Botswana). As Africa grows and more countries achieve middle-income status, the distinction between emerging and frontier markets will fade and Africa will increasingly be viewed as a single market. The above-mentioned economies represent more than 90% of the volume of sovereign bond issues on the continent. The total amount issued by Africa in 2005 was USD 99.8bn; this total stands at USD 284bn in The average yield on African government bonds rose from 6.64% in 2005 to 11.22% in The yield curve is a key component of the securities market depicting the difference that prevails at any given point in time in the market place between yields/return and maturities. The government bond yield curve is used as a benchmark for pricing other fixed-income securities and can help investors determine the relative attractiveness of long-term bonds, for instance, as against securities of a lower tenor. The AFMI believes it is appropriate to produce an African Yield Curves Guidebook that will provide basic details on countries attempts to gradually produce and publish their own yield curve, while at the same time highlighting the challenges they face in this endeavor. This first edition of the Guidebook covers a group of 18 countries and two regional bodies, the Central African Economic and Monetary Community (CEMAC) and the West African Economic and Monetary Union (WAEMU), which represent another 14 countries. They responded to a questionnaire from the AFMI. In addition to the information provided by local counterparts in the countries concerned, other published data sources were used as appropriate to produce the content of the Guidebook. Additional countries will be covered in subsequent editions, while the quality of the content will also continue to be improved. As we further refine its coverage in the future, we hope this publication will become an important source for yield curve computations in the African local securities markets, and will be of interest to a range of stakeholders, including investors, issuers, policy-makers and members of the academic world. We would like to thank the authorities in each participating country for sharing relevant information with us, as well as AFMI staff for making this publication possible. Stefan Nalletamby Director, Financial Sector Development Department 7

8

9 Overview In line with the ongoing efforts of the African Development Bank (AfDB) to disseminate information on the African financial markets, we are pleased to present this very first edition of the African Yield Curves Guidebook. This Guidebook is the first attempt to consolidate basic data on African yield curves, the structure and processes used in their computations, as well as the challenges faced by countries in coming up with a reliable tool to guide investment decisions on the securities market. This publication initially focuses on 18 individual countries and two regional bodies, the Central African Economic and Monetary Community (CEMAC) and the West African Economic and Monetary Union (WAEMU) representing another 14 countries. They represent those who responded to a questionnaire issued by the African Financial Markets Initiative (AFMI). The intention is to cover all the 54 African markets over subsequent editions of the Guidebook, as data is further refined for different users who may be interested in analyzing how the yield curve is developed and published. Private Sector Development and Government Bond Markets The absence of a thriving local bond market limits companies ability to finance expansion, build infrastructure, and expand their service offering. Functioning capital markets are essential for efficient capital allocation and risk sharing in private sector-led economies. Government bond markets are the foundation for the emergence of local currency capital markets and almost always precede the development of well-functioning private sector funding. An efficient government bond market provides the backdrop for the provision of long-term financing to the private sector and hence is essential to support the growth of developing economies. The government bond market plays the most important role, since the yield curve of government bonds, which are theoretically credit risk-free in local currency, serves as the benchmark for other entities in their economic planning (investment decisions) within that local market. Furthermore, the yield curve signals valuable information, such as inflation expectations, for monetary and financial policy-makers. African Financial Market Initiative (AFMI) In keeping with its commitment to reduce poverty and promote development through growth and economic integration, including via the development of capital markets in Africa, the African Development Bank (AfDB) launched the AFMI. Set up in 2008, the initiative is aimed at enhancing the mediumto long-term development of African domestic bond markets, mainly through strengthening the domestic bond market infrastructure and investing in local currency-denominated debt. Over the years, the AFMI has worked together with member countries in contributing to the development of the debt market in local currency in Africa; assisting governments to obtain more favorable borrowing rates in the domestic market, reducing their dependence on foreign debt; supporting attempts to expand the investor base in the domestic debt markets; improving the availability and transparency of African markets in fixed-income securities; providing borrowers with alternative sources of long-term financing in African currencies and, as appropriate, acting as a catalyst for the development and stability of financial markets as well as for regional integration. Where We Are Now Securities markets in Africa have been gradually expanding in recent years and have, with various degrees of success, been providing the platform for mobilizing local sources of finance to promote development. The global financial crisis in 2008 and the uncertainty that dominated the international capital markets and other international sources of finance served as a reminder for governments on the African continent of the critical need to deepen domestic debt and capital markets so that these can play a greater role in mobilizing the resources needed to support social, development and infrastructure needs. Securities Markets and the Yield Curve There is ample evidence in Africa itself to support the need to create a vibrant financial sector that will spur the country s further growth and economic development. Empirical evidence strongly suggests that the development of well-functioning capital markets, supported by efficient government debt markets, will promote long-term economic growth. The objectives of debt management typically include developing domestic debt markets as part of a strategy to minimize cost at an acceptable level of risk. Increasing the domestic debt portfolio reduces reliance on external sources of finance that usually carry foreign exchange risk. Developing the primary and secondary markets also contributes to fiscal and monetary stability by enabling the 9

10 governments to manage its liquidity transparently. This provides the basis for a sound investment climate, characterized by efficient debt and capital markets as well as a diversified resource base for growth and development. It will be essential to develop government benchmark securities as part of a country s plan to establish a well-functioning government securities market. Associated with such a benchmark securities program is the yield curve or the term structure of interest rates. The zero-coupon yield curve - as it is also known - is one of the most fundamental aspects of any bond market. It is the continuous curve of zero-coupon rates plotted against time to maturity and depicts the difference at any given point in time in the market place between yields and maturities. The zero-coupon rate for a given maturity is the rate at which an individual cash flow on that maturity date is discounted to determine its present value or the fair price of bonds. The shape of the yield curve itself will provide an indication of investors outlook on the economy. As a country develops a range of benchmark bonds at different maturities, it can come up with the benchmark yield curve. In plotting the yield to maturities with different maturity dates of benchmark bonds, we can assess the actual shape of the yield curve and its implications for the country. In normal market conditions, one would expect investors to associate a lower risk level with short-term bonds than long-term securities (there is a greater uncertainty as the maturity for the bonds gets longer). While these conditions will generate a normal yield curve, it is important to assess situations that may lead to an inverted or flat yield curve. Building a robust and representative yield curve hinges on many elements that are already in place: an efficient debt market, a regular debt issuance strategy, with a benchmark bond program in place, well-developed secondary market trading, pricing efficiency, cash and money market operations, etc. Indeed these broad issues are central to the policy agenda of working towards efficient bond market development in these countries. Main Guidebook Content For each market, the Guidebook provides an overview of the status of the securities market, focusing on the types of instruments issued by the government and basic market indicators, as well as details on where respondents are in terms of yield curve computations. These include: government issuance strategy; benchmark issues; yield curve calculation and interpolation methods, display platform, latest yield curve available, and agencies involved with yield curve computation and their contact details. 10

11 Country Guide

12 Botswana... Summary Source : Bloomberg, 28 jun 2016 Sovereign rating as of September S&P Moody s Fitch A- Stable A2 Stable N/A - Source : Bloomberg The government securities yield curve extended to ( and 25 years). Botswana is 5th in the ABMDI 2015 Ranking Report. 1 Issuance strategy The government issues debt primarily for capital market development and not to fund the budget. The issuance program is capped at 40% of GDP apportioned as follows: 20% for domestic debt and 20% for external debt. Bonds and Treasury bills are issued through quarterly auctions. Benchmark issues Constructing a government yields curve is one of the considerations in the government issuance strategy in terms of both new and reopening of existing benchmarks. This helps with repricing and price discovery. There are currently 5 benchmarks with large issue amounts: and 25 years. Yield curve Calculation models Primary dealers quote rates from the markets. Bloomberg also provides yields in real time for individual bonds. Interpolation methods linear interpolation method is used for reporting purposes. Yield curve managed by The Bank of Botswana (Central Bank) is in charge 12 1 The report is available on the AFMI s Website: Documents/Knowledge_Pubs/The_African_Fundamental_Bond_Index_%E2%80%93_ edition.pdf

13 of calculating the yield curve on a daily basis. Display platform The yield curve can be accessed from Bloomberg and Reuters. - Narrow investor base: there are few investors (mainly institutional investors) who buy and hold. - Limited and illiquid secondary market: bonds are illiquid, because of the limited stock investors buy and hold. - Limited competition: the only primary dealers are local commercial banks (5). Contacts Bank of Botswana P/Bag 154 Khama Crescent Street Botswana Tel: Fax: masalilal@bob.bw Website: 13

14 Burundi... Summary There is no benchmark yield curve Sovereign rating as of September 21, 2016 S&P Moody s Fitch N/A - N/A - N/A - Source : Bloomberg The government securities yield curve extended to 5 years with 2 benchmark points along the curve (2 and 5 years). The issuance strategy is based solely on funding the budget. Constructing the yield curve is not taken into account in the issuance strategy. The issuance methods used are auction method and the underwriting method, both in new lines. Burundi is 39th in the ABMDI 2015 Ranking Report. Interpolation methods N/A Yield curve managed by N/A Display platform N/A Issuance strategy The issuance strategy is based solely on funding the budget. Benchmark issues There are two benchmark maturities for government securities in local currency, Burundi Franc (BIF): 2 and 5 years. The benchmark maturities are those with large issue amounts and issued on a regular basis. Yield curve - Illiquid and limited secondary market: There are few transactions in the OTC market. Contact details Banque de la République du Burundi BP 705, Bujumbura, Burundi Tel: Fax: Website: peggynyandwi@gmail.com Calculation models There is no yield curve in Burundi and the government issuance strategy does not plan to build a benchmark yield curve. 14

15 Central African Economic and Monetary Community (CEMAC) Summary There is no benchmark yield curve Sovereign rating as of September 21, 2016 Source : Bloomberg Cameroon Central African Republic Chad Congo Rep Equatorial Guinea S&P B N/A N/A B- N/A B+ Moody s N/A N/A N/A B3 N/A Ba3 Fitch B NA N/A N/A N/A BB- Gabon The CEMAC securities yield curve extended to 5 years with 9 benchmark points along the curve (3m-6m and 5 years). The issuance strategy is based solely on funding the budget. Constructing the yield curve is not taken into account in the issuance strategy. The issuance methods used are the auction method and the underwriting method. ABMDI 2015 Ranking Source : ABMDI 2015 Report Cameroon Central African Republic Chad Congo Rep Equatorial Guinea Gabon Issuance strategy market in Libreville or in Douala. They can also use the auction market for government securities which is organized by the Central Bank, the Banque des Etats de l Afrique Centrale (BEAC). The states have no proper debt strategy in place. Benchmark issues There are 9 benchmarks maturities for government securities in local currency in the CEMAC zone: 3m- 6m and 5 years. 15

16 Yield curve Calculation models The BEAC prepared its own in-house method for computing its yield curve: the implied yield curve. Interpolation methods The Brandt interpolation method is used in the CEMAC region. Yield curve managed by The BEAC is responsible for calculating the yield curve on a monthly basis. Display platform N/A Challenges in building an efficient yield curve - Illiquid and limited secondary market: buyand-hold investors - Narrow investor base: only banks are involved in the bond market - Coexistence of three agencies for issuing bonds and bills: the Douala Stock Exchange (DSX) and the Bourse des Valeurs Mobilières de l Afrique Centrale (BVMAC) are in charge of syndication. The Banque des Etats de l Afrique Centrale (BEAC) is responsible for auctions. - Lack of issuance strategy in CEMAC states - Lack of reliable data - Lack of long-term maturity - Two countries had never issued on the domestic market as of end-2015 Contact details Banques des Etats de l Afrique Centrale (BEAC) BP 83, Yaoundé, Cameroon Avenue Vogt, Yaoundé, Cameroon Tel: /3390 Fax: beac@beac.int, beacyde@beac.int Website: 16

17 African Yield Curves Guidebook Egypt... Summary Source: Bloomberg BBG Code: YCGT0712 Sovereign rating as of September 21, 2016 S&P B- Stable Moody s B3 Stable Fitch B Stable Source : Bloomberg The government securities yield curve extended to ( and 10 years) Egypt is 2nd in the ABMDI 2015 Ranking Report. Issuance strategy The debt management strategy aims at issuing gradually larger volumes of longer-dated Treasury bonds by means of constant issuance and re-openings in order to lengthen the average life of the debt stock, to consolidate the government The strategy recommends diversifying sources projects and enlarge the investor base by attracting retail investors and incorporating more non-banking 17

18 To support market development and to move to a more transparent and visible phase, four steps are related to the issuance plan: 1. Focus on a limited number of benchmark maturities, namely and 10 years. 2. Increase the number of re-openings of each security and raise target amount outstanding to about EGP bn per T-Bond. 3. To avoid crowding, maturities are organized to be issued every other week: and 7 years T-Bonds are issued on the same day, while 5 and 10 years are issued on the following Monday. 4. Auctions days are organized to avoid crowding out among competing maturities. Therefore, 6-and 12-month securities are issued on Thursday, 3- and 9-month are issued on Sunday, and T-Bonds issuance takes place on Monday. Benchmark issues Egypt focuses on a limited number of benchmark maturities, precisely, and 10 years to build a consolidated yield curve. The auction technique is used to sell government securities. The Government of Egypt also reopens existing line to: 1- Lengthen the average life of the debt stock. 2- Consolidate the government securities yield curve. 3- Reduce the refinancing risk. 4- Increase supply side liquidity to enhance trading volume in the secondary market. Yield curve Calculation models Building a benchmark yield curve is a consideration for issuance. The country built a yield curve based on the Nelson-Siegel model. This curve is an implied yield curve. Interpolation methods The linear interpolation method is used. Yield curve managed by The yield curve is produced by the Central Bank of Egypt. Display platform The yield curve is accessed from Bloomberg. Challenges in building an efficient yield curve - Market fragmentation - Illiquid and limited secondary market - Narrow investor base Contact details Central Bank of Egypt 54 Elgomhoreya Street Cairo, Egypt Tel: / / info@cbe.org.eg Website: 18

19 Ghana... Summary There is no benchmark yield curve Ghana does not have a benchmark yield curve, but the Bank of Ghana and the Ministry of Finance construct a Sovereign rating as of September 21, 2016 S&P Moody s Fitch B- stable B3 negative B negative Source : Bloomberg The government securities yield curve extended to 7 years with six potential benchmark points along the curve (3-6 months, and 5 years). The strategic target is to keep Treasury bonds at 70% of domestic debt against 30% for Treasury bills. Ghana is 8th in the ABMDI 2015 Ranking Report. Issuance strategy Ghana s Medium-Term Debt Strategy (MTDS) has set a number of objectives, including the following: (i) Domestic market to serve as potential alternative sources of funding. (ii) Improve market liquidity and therefore cover credit premium. the portfolio risk. (iv) Streamline issuance (calendar). The strategy envisages lengthening the domestic constitutes 59.4% of total borrowing. Benchmark issues There are 6 potential benchmark maturities: 3-month, 6-month, and 5 years. Currently only 3-month and 6-month tenor function as real benchmarks, for the others either the issue size is too small or issuance is very infrequent. Yield curve Calculation models Ghana does not have a benchmark yield curve, but the Bank of Ghana and the Ministry of Finance construct a yield curve using yields from primary markets for internal purposes. With the lack of a secondary market and sporadic yield quotation on Reuters or Bloomberg, the latest auction yields are considered as a benchmark yield curve. No zerocoupon curve is regularly calculated. Interpolation methods Linear interpolation is used. Yield curve managed by The Bank of Ghana and the Ministry of Finance calculate the yield curve on a weekly basis. 19

20 Display platform N/A - Market fragmentation: the market is segmented: non-residents can only purchase 7-year and longer bonds, while domestic investors are keen only on 6-month tenor. - Narrow investor base : the domestic institutional investor base is thin albeit growing. - Illiquid and limited secondary market: most investors buy and hold securities. - Lack of transparency in pricing securities in the secondary market: quotations from Reuters and Bloomberg are sporadic. However a new electronic trading platform will start soon. - Lack of effective benchmarks : there is no benchmark issue in terms of size. Contact details Bank of Ghana P. O. Box GP 2674, One Thorpe Road, High Street, Accra, Ghana Tel: / Fax: bogsecretary@bog.gov.gh Website: 20

21 Kenya... Summary Sources: Bloomberg, Kestrel and NSE, 30 jun 2016 BBG Code: BVIS1148 Sovereign rating as of September 21, 2016 S&P Moody s Fitch B+ stable B1 stable BB- stable Source : Bloomberg The government securities yield curve extended to 30 years with five benchmark points along the curve ( and 20 years). The longest bond tenor in Kenya is currently 30 years (currently 25 years remaining to maturity) which is a Saving Development Bond. The strategic target is to maintain Treasury bonds at 70% of domestic debt vs. 30% for Treasury bills. Kenya is 6th in the ABMDI 2015 Ranking Report. Issuance strategy 2 In May 2001, the Government restructured the domestic debt portfolio from a ratio of 30:70 to the current 70:30 for Treasury bonds and Treasury bills respectively. According to the 2015 Medium-Term Debt Management Strategy (MTDS), the projected debt stock for is 46.8% of GDP (of this percentage, 48.7% is external debt and 51.3% domestic debt). As of June 30th, 2014, the total domestic debt was valued at KES 1,284.3 billion or 25.4% of GDP. In 2007, the Central Bank introduced the Benchmark bond program through the reopening of Treasury bonds. This program was intended to: 1. Address the problem of bond fragmentation. 2. Develop appropriate maturity and volume to boost liquidity in the secondary market. 3. Develop appropriate size and frequency of 2 The 2015 Medium-Term Debt Management Strategy (MTDS) is available on the following address: Countries/Kenya/National_Treasury/Kenya_Me dium-term_debt_strategy-2015.pdf 21

22 benchmark issues. debt. 5. Firm up Kenya s sovereign yield curve. All government securities are sold by the multipleprice auction method. bond. This was followed by a 25-year security in 2010 and a 30-year Savings Development Bond in generate an appropriate yield. Yield curve managed by Kenya s yield curve is generated by the Nairobi Securities Exchange on a weekly basis. However, different market players also generate independent yield curves. Display platform The yield curve can also be accessed from the Nairobi Securities Exchange website and the Bloomberg platform. Benchmark issues As of 2007, the Government of Kenya began to outline the appropriate maturity distribution. It created benchmark maturities for government securities in local currency (KES): and 20 years. Yield curve Calculation models Building a benchmark yield curve is a consideration for issuance as it provides a pricing reference for by the issuance of benchmark bonds by auction, or by tap sales and reopening. The yield curve is generated from actual traded yields of benchmark bonds (excluding trades on infrastructure bonds, sell/buy-back transactions and benchmark bonds lower than USD 500,000 or KES 50M per transaction). However, for the tenors where no actual trading took place, the indicative yields obtained from bond market traders are used. The estimation for the yield curve is simple trend for Kenya s benchmark curve is the Nelson-Siegel method. Interpolation methods Where there is no traded yield for a certain point along the yield curve, linear interpolation is used to - Market fragmentation: implementation of the benchmark bond program is at an advanced stage to reduce the number of small illiquid outstanding bonds - Narrow investor base: reforms are needed to diversify the investor base. - Lack of transparency in pricing: there are reforms to improve price discovery and promote Contact details Central Bank of Kenya Haile Selassie Avenue, P.O. Box , Nairobi, Kenya Tel: / Fax: comms@centralbank.go.ke Website: Nairobi Stock Exchange 55 Westlands Road P O Box Nairobi Kenya info@nse.co.ke Phone: / +254 (020) Fax: Mobile: / Website: 22

23 Lesotho... Summary There is no benchmark yield curve Sovereign rating as of September 21, 2016 S&P Moody s Fitch N/A - N/A - BB stable Source : Bloomberg The government securities yield curve extended to 10 years with three benchmark points along the curve (5-7 and 10 years). The issuance strategy is based on the government s budgetary needs and the development of the domestic debt market. Lesotho is 35th in the ABMDI 2015 Ranking Report. Issuance Strategy budgetary needs and to develop the domestic debt market. Benchmark issues In order to facilitate pricing and valuation of capital market securities, the government issues debt instruments, although not in a satisfactory manner as there are currently no long-dated maturities, which defeats the purpose of lengthening the maturity few benchmark points to construct the yield curve instruments. There are 3 benchmarks maturities: 5-7 and 10 years. By the auction method, the government issues new instruments and also re-opens existing bonds. Yield curve Calculation models There is no yield curve in Lesotho even though the government issuance strategy refers to building the government benchmark yield curve. The bootstrapping model has been approved and the yield curve will be constructed once a month. The yield curve will be based on primary market activities. N/A Interpolation methods Yield curve managed by If constructed, the yield curve will be built by the Central Bank of Lesotho. Reuters. yield curve Display platform The yield curve will be on the Bank s - Illiquid bonds and limited secondary market: there is no vibrant secondary market because activity is minimal. Holders do not sell but hold securities to maturity as they view them as a form of savings. - Lack of transparency in pricing: due to inactivity in the secondary market, there is lack of transparency and knowledge in terms of pricing of securities. - Narrow investor base 23

24 Contact details Central Bank of Lesotho P.O. Box 1184, MASERU 100, Kingdom of Lesotho Corner Airport and Moshoeshoe Roads, Maseru Central, Lesotho Tel: +266) / Fax : / cbl@centralbank.org.ls Website: 24

25 Madagascar... Summary There is no benchmark yield curve Sovereign rating as of September 21, 2016 S&P Moody s Fitch N/A - N/A - N/A - Source : Bloomberg The government securities yield curve extended to 3 years with three benchmark points along the curve (1-2 and 3 years). Madagascar is 36th in the ABMDI 2015 Ranking Report. Issuance strategy The issuance programs are conducted according to the importance of the liquidity situation in the market in order to obtain the lowest possible cost. Benchmark issues Yield curve construction is not taken into account in the issuance strategy. However, the government of Madagascar targets 1-2 and 3 years as benchmarks maturities. The auction and underwriting methods are used for securities issuance. There is no benchmark yield curve in Madagascar. Yield curve Calculation models There is no yield curve in Madagascar and the government issuance strategy does not plan to build a benchmark yield curve. Interpolation methods N/A Yield curve managed by N/A Display platform N/A - Narrow investor base: commercial banks are the main investors. - Illiquid secondary market apart from government securities, which are in their infancy, Contact details Banque Centrale de Madagascar B.P 550, Madagascar, Antananarivo 101, Madagascar Tel: Fax: sbu@bfm.mg mailto : gv.cab@bfm.mg Website: 25

26 Malawi... Summary There is no benchmark yield curve Sovereign rating as of September 21, 2016 S&P Moody s Fitch NA - NA - NA - Source : Bloomberg The government securities yield curve extended to 5 years with three real benchmark points along the curve (2-3 and 5 years). The issuance strategy is to restructure government debt and build the benchmark yield curve for market development. Malawi is 33rd in the ABMDI 2015 Ranking Report. Issuance strategy The strategy is to issue more longer-dated government paper in order to restructure government debt, which is largely short term at the moment, and to develop an active benchmark yield curve for market development. Benchmark issues Malawi aims to develop a market-based longerdated benchmark government bond yield curve. The government aims to create benchmarks for and 20 years. The government of Malawi uses the auction method and some issues are reopened until they are fully subscribed and allotted. Yield curve Calculation models Despite the fact that Malawi has no benchmark yield curve, the Reserve Bank of Malawi currently prepares a indicative yield curve on a weekly basis.the actual yields are used where available and indicative yields based on market consensus where there are no active trades. Interpolation methods The linear interpolation method is used where there are no benchmark yields from actual trades or survey. Yield curve managed by Despite the fact that Malawi has no benchmark yield curve, the Reserve Bank of Malawi currently prepares a yield curve on a weekly basis. However, this will be transferred to the Financial Market Dealers Association (FIMDA) Display platform The Daily Reports with the yield curve are posted on the Reserve Bank of Malawi website. - Illiquid bonds and limited secondary market: there is usually no secondary market trading of bonds, despite their listing on the Malawi Stock Exchange (MSE). Contact details Reserve Bank of Malawi Box 30063, Capital City, Lilongwe 3, Malawi Convention Drive City Centre, Lilongwe, Malawi Tel: Fax: /265, webmaster@rbm.mw 26

27 Morocco... Summary Source: Bank-Al-Maghrib, 28 jun 2016 Sovereign rating as of September 21, 2016 S&P Moody s Fitch BBB- Stable Ba1 Stable BBB Stable Source : Bloomberg The government securities yield curve extended to 30 years with nine benchmark points along the curve. Morocco is 9th in the ABMDI 2015 Ranking Report. Issuance strategy Ensure stable and sustainable funding to the Treasury and eventually reduce the cost of debt, while minimizing risks. Promote arbitration between internal and external resources (75%-25%). Contribute to the development of the market for Treasury securities Benchmark issues There are nine (3M-6M-1Y-2Y-5Y-10Y-15Y-20Y-30Y) benchmark maturities for government securities in local currency (MAD). Yield curve Calculation models The yield curve is a reference for the market. It is built for the purpose of valuation of Moroccan Morocco s benchmark curve consists of: a. Collecting data on transactions in the primary and secondary securities markets settled by Maroclear, Morocco s Central Depository. b. Segmentation by residual maturity. c. Inclusion of recent transactions; d. Published rates are, for every term, weighted average rates per prices. The yields are expressed in: 27

28 - monetary rates for maturities up to 1 year. - actuarial rates for maturities exceeding 1 year. The auction method is used by the government of Morocco and some issues are reopened. Interpolation methods Where there is no traded yield for a certain point along the yield curve, interpolation is used to generate an appropriate yield. The linear interpolation is used in the case of Morocco. Yield curve managed by Morocco s yield curve is generated by the Bank Al-Maghrib on a daily basis. The yield curve is available on two electronic platforms : Bank Al-Maghrib s website, and Bloomberg. - Lack of transparency in pricing: there are no quotations for government securities Contact details Bank Al-Maghrib/Central Bank of Morocco 277, Avenue Mohamed V, Rabat Morocco Tel: Fax: gouverneur@bkam.gov.ma Website: Display platform 28

29 African Yield Curves Guidebook Namibia... Summary B Source: Bloomberg BBG Code: BVIS1201 Sovereign rating as of September 21, 2016 S&P NA Moody s - Baa3 Stable Fitch BBB Stable Source : Bloomberg The government securities yield curve extended to 30 years with 14 (3m-6m Years) benchmark points along the curve Namibia is 4th in the ABMDI 2015 Ranking Report. Issuance strategy securities, markets and tenors that will be tapped Expenditure. Financing period of three years. The plan outlines the allocations across various instruments and the markets in which these instruments will be issued, based on cost and risk considerations, as well as the prevalence of market demand. The government debt security issuance strategy details the funding plan, in terms of volumes, 29

30 Benchmark issues There are fourteen (3m-6m years) fixed-rate benchmark maturities and two inflation-linked maturities for government securities in local currency. Yield curve Calculation models As the main issuer in the domestic market, the Namibian government is committed to develop the market and create benchmarks for the private and public sectors. Notwithstanding the function of developing the domestic market, the government employs a costeffective issuance strategy. As such, both new lines and taps on the old securities are used. The benchmark yield curve in Namibia is a market curve. The yield curve is constructed from the average of the rates quoted by the main market participants, which consist of commercial banks and brokers. Interpolation methods Where there is no traded yield for a certain point along the yield curve, interpolation is used to generate an appropriate yield. Cubic spline interpolation is used in the case of Namibia. Yield curve managed by The Bank of Namibia is the official body in charge of calculating the yield curve on a daily basis. Display platform Namibia s benchmark yield curve is available on Bloomberg. Challenges in building an efficient yield curve - Illiquid Bonds and limited secondary market: There is a lack of trading in the secondary market, which makes effective market pricing difficult as most investors buy and hold bonds to maturity. Contact details Bank of Namibia P.O. Box 2882, Windhoek, Namibia Tel: Fax: Website: 30

31 African Yield Curves Guidebook Nigeria... Summary Source: Bloomberg BBG Code: YCGT0680 Sovereign rating as of September 21, 2016 S&P B+ Moody s Stable Baa3 Stable Fitch BB Negative Source : Bloomberg The government securities yield curve extended to 20 years with seven benchmark points along the curve ( and 20 years). Nigeria is 3rd in the ABMDI 2015 Ranking Report. Issuance strategy According to the Medium-Term Debt Strategy, the National Debt Management Framework (NDMF) is designed to further facilitate development of the domestic bond market and attract more foreign domestic debt is guided by an allocation of 75% and 25% for long and short term debt, respectively. Benchmark issues Reopening and auction are the techniques used by the federal government. Issuance of bonds is essentially meant to augment government income. However, the yield curve is important to both investors and government debt managers for appropriate pricing. There are 7 benchmark maturities : years. 31

32 Yield curve Calculation models Financial Market Dealers Quotation (FMDQ) Methodology Interpolation methods FMDQ Methodology Yield curve managed by FMDQ OTC Securities Exchange Display platform Bloomberg and FMDQ s website: - Narrow investor base: Nigeria needs to diversify the investor base, in particular to attract non-residents to invest in the domestic sovereign bond markets. - Macroeconomic challenges: especially the ripple effects that arose from volatility in international commodities prices, notably oil. Contact details Central Bank of Nigeria P.M.B. 0187, Garki Abuja, Nigeria Zaria Street, Garki, Abuja, Nigeria Tel: / Fax: info@cenbank.org Website: Nigerian Stock Exchange, P.O. Box 2457, Lagos, Nigeria Stock Exchange House, 8th, 9th and 23rd Floor, 2/4 Customs Street, Lagos, Nigeria Tel: Fax: nse@nigerianstockexchange.com Website: 32

33 Seychelles... Summary There is no benchmark yield curve Sovereign rating as of September 21, 2016 S&P Moody s Fitch B+ - N/A - N/A - Source : Bloomberg Seychelles is 11th in the ABMDI 2015 Ranking Report. Debt issuance is mainly for monetary purposes. Interpolation methods N/A The government of Seychelles mainly Treasury bills for its debt issuance purposes. Issuance strategy uses Yield curve managed by The Central Bank of Seychelles will be involved. Display platform Debt issuance is mainly for monetary purposes. Although the short-term plan is to reduce the share of domestic debt in the total debt portfolio, the Medium- Term Debt Strategy indicates that a lengthening of preferred, while the development of the domestic securities market is a stated objective of the plan. Benchmark issues The government of Seychelles does not have benchmarks in its issues. Yield curve Calculation models There is no benchmark yield curve in Seychelles. N/A - Lack of issuance strategy: government bond issuance is infrequent. Whenever there is an issuance, it is on a tap basis. - Illiquid and limited secondary market: most investors buy and hold securities Contact details Central Bank of Seychelles P.O. Box 701 Victoria Mahe Seychelles Tel: Fax: Website: 33

34 African Yield Curves Guidebook South Africa... Summary Source: Bloomberg BBG Code: YCGT0680 Sovereign rating as of September 21, 2016 S&P BBB+ Moody s Stable Baa2 Stable Fitch BBB+ Negative Source : Bloomberg The government securities yield curve extended to 35 years. South Africa is 1st in the ABMDI 2015 Ranking Report. Issuance strategy remain the key funding instrument for government, accounting for 80% of domestic long-term loan 34 are conducted on a weekly basis in line with a prethe international bond market, the National Treasury plans to issue USD1 billion equivalent. Timing will depend on conducive market conditions, which will enable favorable pricing.

35 Benchmark issues By re-issuing existing bonds in the domestic a benchmark size for SOCs and private-sector companies, as well as meeting market demand. South Africa has a government benchmark yield curve. with a maturity of 10Y. The R207 bond with a 4Y maturity is used at the shorter end, and the R209 bond with a 20Y maturity is used in the ultra-long end. Additionally, the R2048 bond with a 32Y maturity point is becoming a benchmark bond of sorts. Yield curve Calculation models On one hand, South Africa has an implied yield bonds. This yield curve is for internal purposes. On the other hand, there is a market curve in South Africa. Interpolation methods Where there is no traded yield for a certain point along the yield curve, interpolation is used to generate an appropriate yield. The linear interpolation method is used in the case of South Africa. Yield curve managed by The National Treasury is in charge of calculating the implied yield curve on a daily basis. This yield curve is not published. However South Africa has a market curve based on secondary market activity (i.e. bid, offer trade price/yield). Display platform The market yield curve can be accessed from the Reuters and Bloomberg systems. - There are no particular challenges for South Africa s benchmark yield curve. Contact details South African Reserve Bank 370 Church Street, Pretoria 0002, P.O. Box 427, Pretoria, 0001, RSA Tel: Fax: or Website: 35

36 Swaziland... Summary Source: Central Bank of Swaziland Sovereign rating as of September 21, 2016 S&P Moody s Fitch NA - N/A - N/A - Source : Bloomberg The government securities yield curve extended to 10 years with four benchmark points along the curve (3-5-7 and 10 years). It has a Medium-Term Debt Strategy which is published after the budget speech. Swaziland is 26th in the ABMDI 2015 Ranking Report. Issuance strategy Swaziland has a Medium-Term Debt Strategy which is published after the budget speech. Strategy : (i) reaching out to potential investors for auctions of government securities, rates, and Benchmark issues Benchmark issues (3-5-7 and 10 years) are sold in the market using the auction and reopening methods. The yield curve is indicative only. Yield curve Calculation models Swaziland uses the Republic of South Africa s yield curve plus spread. Interpolation methods N/A Yield curve managed by The Central Bank of Swaziland is in charge of calculating the yield curve on a daily basis. Display platform The yield curve is available on the Central Bank of Swaziland s website. 36

37 Challenges in building an efficient yield curve The government faces the following challenges in building an efficient yield curve: - Illiquid and limited secondary market - Narrow investor base: Swaziland does not have foreign participation - Lack of transparency in pricing, especially the primary dealers Contact details Central Bank of Swaziland P.O. Box 546 Mbabane, Swaziland. Tel: Fax: info@centralbank.org.sz Website: 37

38 Tanzania... Summary There is no benchmark yield curve Sovereign rating as of September 21, 2016 S&P Moody s Fitch N/A - N/A - N/A - Source : Bloomberg The government securities yield curve extended to 15 years. The issuance strategy aims to meet government Interpolation methods N/A Yield curve managed by Tanzania is 14 th in the ABMDI 2015 Ranking Report. Issuance strategy Issuance strategy in place: to meet government N/A Display platform N/A the proportion of domestic debt vs. foreign debt; the investor base, and sustainable debt issuance. Benchmark issues Although building a yield curve is a consideration for issuance and a repo market is in place, there are no clear benchmark maturities. The Bank of Tanzania does not reopen bonds. Each issuance is a new issue using the auction method. There is no benchmark yield curve in Tanzania. Yield curve Calculation models There is no yield curve in Tanzania currently, although the government issuance strategy includes plans to build a benchmark yield curve. - Market fragmentation: this is due to the existing small bond issues in the market. - Narrow investor base: Tanzania has partially liberalized the capital account to East African Community (EAC) residents under conditions that have limited the participation of even those EAC residents. The market is dominated by local investors. The absence of foreign investors has limited performance on the secondary market. - Limited and illiquid secondary market: 1. Pension fund holdings of government securities account for over 40% of outstanding government bonds. These are not made available for sale. 38

39 2. The absence of a horizontal repo market has made government bonds even more illiquid. 3. The inadequate volume of instruments in the market has led investors to hold on to their securities until maturity. - Lack of transparency: lack of intermediaries giving two-way quotes has limited pricing and transparency in the secondary market. However, all trades in the secondary market have to be reported to the Stock Exchange. Contact details Bank of Tanzania P.O. Box 2939, Dar-es- Salaam,Tanzania 10 Mirambo Street, Dar-es-Salaam, Tanzania Tel: , Fax: info@hq.bot-tz.org Website: - Lack of legal and regulatory framework: absence of legal and regulatory framework supporting both OTC and Exchange trading of bonds 39

40 Tunisia... Summary There are two yield curves in Tunisia. The one produced by the Conseil des Marchés Financiers, which is derived from primary market, and the other provided by Tunisie Clearing which is based on data from both the primary and secondary markets. Sources: CMF, Tunisie Clearing, 29 Jun 2016 Sovereign rating as of September 21, 2016 S&P Moody s Fitch NA - Ba3 Negative BB Stable Source: Bloomberg The government securities yield curve extended to 15 years with three benchmark points along the curve (4-7 and 10 years). The strategy is to increase the share of domestic debt to 50% of total public debt. Tunisia is 18 th in the ABMDI 2015 Ranking Report. Issuance strategy The government s strategy on bond issuance is focused on gradually increasing the share of domestic debt to 50% of public debt (currently the share of domestic debt is 38% of public debt). Benchmark issues By auction and by reopening methods, the government of Tunisia has built three maturities benchmark. Despite the existence of a REPO market, the secondary market is not dynamic. Strategically, it plans to build a yield curve when the secondary market becomes transparent and dynamic. However, a regulatory agency, the Conseil des Marchés Financiers (CMF), currently simply builds a curve 40

41 from the issues on the primary market. In addition to the CMF s yield curve, Tunisie Clearing (Tunisia s clearing house) has developed a secondary market-based yield curve. Yield curve Calculation models The yield curve in Tunisia is generated from actual issued yields at issuance. This is a market yield curve but only from the primary market. Interpolation methods Where there is no traded yield for a certain point along the yield curve, linear interpolation is used to generate an appropriate yield. Yield curve managed by The yield curve generated by the Conseil des Marchés Financiers is on a weekly basis. The one generated by Tunisie Clearing is on a daily basis. Display platform The yield curves can be accessed from the Conseil des Marchés Financiers and Tunsie Clearing websites. Tunisia faces the following challenges in building - Market fragmentation: primary, secondary and repo market are all fragmented - Narrow investor base - Limited and illiquid secondary market - Lack of transparency Contact details Conseil du Marché Financier 8, Rue du Mexique 1002, Cité Montplaisir, Tour Babel Escalier E, Tunis, Tunisia Tel: cmf@cmf.org.tn Web site: Tunisie Clearing 5, Rue du Yen, Les Jardins du Lac II, 1053 Les Berges du Lac Tunis,Tunisia Tel: tunisieclearing@tunisieclearing.com Web site : 41

42 Uganda... Summary Source: Bank of Uganda 22-Jun-2016 Sovereign rating as of September 21, 2016 S&P Moody s Fitch B Stable B1 Stable B+ Stable Source: Bloomberg The government securities yield curve extended to 15 years with 4 benchmark points along the curve ( and 15 years). Uganda is 15th in the AFBI 2015 Ranking Report. Issuance strategy The annual budget clearly sets out the volume of net Treasury securities issuance to be conducted proceeds will be used. Planned net issuance must be fully consistent with the programmed path for the Benchmark issues years. The government aims to create benchmark for and 15 years with large issue amounts. Yield curve Calculation models Uganda s yield curve is a market curve from bid/ ask secondary market quotes made by six primary dealers. Interpolation methods Where there is no traded yield for a certain point along the yield curve, interpolation is used to generate an appropriate yield. Linear interpolation is used in the case of Uganda. There are 4 benchmark maturities: and 15 42

43 Yield curve managed by The Bank of Uganda is the official entity in charge of calculating the yield curve on a daily basis. Display platform Uganda s benchmark yield curve is available on the Bank of Uganda website. Challenges in building an efficient yield curve - Illiquid bonds and limited secondary market : There is lack of trading in the secondary market, which makes it difficult for effective market pricing as most investors buy and hold bonds to maturity. - Lack of transparency: no trading platform to guide price transparency. - Enhance infrastructure for government debt. Contact details Bank of Uganda P.O. Box 7120, Kampala, Uganda 37/43 Kampala Road, Kampala, Uganda Tel: / / Fax: / info@bou.or.ug Website: 43

44 West African Economic Monetary Union (WAEMU) Summary There is no benchmark yield curve Sovereign rating as of September 21, 2016 Source: Bloomberg Bénin Burkina Faso Cote d Ivoire Guinée- Bissau Mali Niger Senegal Togo S&P N/A B- N/A N/A N/A N/A B+ N/A Moody's N/A N/A Ba3 N/A N/A N/A B1 N/A Fitch N/A N/A B N/A N/A N/A N/A N/A ABMDI 2015 Ranking Bénin Burkina Faso Côte d Ivoire Guinée- Bissau Mali Niger Sénégal Togo ABMDI 2015 Ranking Report Issuance strategy The West African Economic and Monetary Union (WAEMU) comprises eight countries: Benin, Burkina Faso, Cote d Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. Bond issuance strategies vary from one state to another. However, most use the MTDS tool to develop their issuance strategy. Generally, most programs are focused on shortterm tenor and characterized by securities with repayments by amortization and deferred coupon. Recently, with the advent of the AUT, the zone has progressed towards lengthening and standardizing securities. Benchmark issues Currently, there is no maturity benchmark in the WAEMU. The region is in the assessment phase of developing a yield curve. WAEMU countries understand that issuance policies need to evolve towards considering the need for a yield curve. Yield curve Calculation models There is no benchmark yield curve in the WAEMU Zone. Interpolation methods N/A Yield curve managed by Agence UMOA-Titres is responsible for the yield curve. 44

45 Display platform N/A curve - Market fragmentation: fragmented securities market and non-standardized securities. - Price discovery issue - Narrow investor base : comprising homogeneous investors such as banks. - Limited and illiquid secondary market - Coexistence of two agencies for issuing bonds and bills : Securities issued by the states, by way of syndication, are the subject of admission to the regional Stock Exchange, the Bourse Régionale des Valeurs Mobilières (BRVM). The Conseil Régional de l Epargne Publique et des Marchés Financiers (CREPMF) is in charge of monitoring the syndication. The Agence UMOA-Titres is responsible for Auctions. Contact details Agence UMOA-Titres Siège BCEAO Avenue Abdoulaye Fadiga Bâtiment Annexe 10ème étage Bureau 1010 BP: 4709 Dakar- RP- Senegal Tel: (+ 221) CREPMF Avenue Joseph ANOMA 01 BP 1878 Abidjan 01 Côte d Ivoire Tel:

46 Zambia... Summary Source: Bank of Zambia, 21 jul 2016 Sovereign rating as of September 21, 2016 S&P Moody s Fitch B+ Negative B1 Stable B Stable Source : Bloomberg The government securities yield curve extended to 15 years with three benchmark points along the curve (3-5 and 10 years). The strategy is to issue securities for domestic development. Zambia is 12th in the ABMDI 2015 Ranking Report. Issuance strategy The national debt strategy aims to reach the following domestic debt structure: 40% for T-Bills and 60% for T-Bonds. Benchmark issues years) were re-opened while the other bonds were new lines. The single-price auction method is used by Zambia. While constructing the yield curve is a consideration, it is yet seen as the utmost priority. The and developing the market for issuance strategy, etc. The criteria used to choose the benchmark is to track the most popular and most liquid bonds. Yield curve Calculation models There is no benchmark yield curve in Zambia although the only yield curve is constructed from the primary market yields of government securities. Up to 2014, benchmark bonds (of 3-5 and 10 46