Capital Markets

Eurobond to cut Treasury interest rates, say experts

State plans to tap global markets for funds to pay maturing debts. FILE PHOTO | NMG
State plans to tap global markets for funds to pay maturing debts. FILE PHOTO | NMG 

Interest rates of fixed-income instruments are expected to come down in the coming weeks due to the expectation of a new Eurobond, analysts say.

The Treasury has been planning the Eurobond since last year to ease pressure on domestic borrowing and credit uptake by the private sector. The bond is supposed to raise cash by end of next month, with a view to meeting maturing debt.

Dyer & Blair Investment Bank said in an analysis that raising of the cash through the Eurobond or even a syndicated loan would push banks to compete for an even smaller pie during the auctions, which in turn will cut rates across the yield curve – the graphic set of interest rates across various maturities.

“If they [Treasury floating Eurobond] do, we believe that the subsequent reduction in domestic borrowing pressure in an interest rate cap environment where banks have chosen to cut down on lending, will push yields on government securities downwards,” said Dyer and Blair in its latest update on the fixed-income market.

The investment bank points to what it called “disproportionately high domestic maturities in 2018, an expansive fiscal stance and the spectre of further currency depreciation” as reasons it believes the government should tap into Eurobond markets this year.

Other investment banks, including Genghis Capital, too see the external borrowing as likely to put pressure on the yields leading to their continued fall. The analysts say in the latest update on the T-bill auctions that the downward trend seen in the market is likely to continue.