NSSF cuts investments in long-term govt debt

NSSF holds at least 78 percent of its investments in fixed income, 15 percent in equities and 7 percent in real estate. PHOTO / FILE

What you need to know:

  • NSSF had locked most of its investments in Treasury Bonds of between five and 20 years because of high yields 

National Social Security Fund (NSSF) is changing some of its investment in government debt form long to short term. 

NSSF had locked most of its investments in Treasury Bonds, which are long-term with maturity periods ranging from five to 20 years because of high yields compared to Treasury Bills, which are short-term.    

The change, Mr Patrick M Ayota, the NSSF acting managing director, told Daily Monitor in an interview on Monday have been necessitated by the need to stock more liquidity for purposes of mid-term access. 

“We are now investing in the 91-day Treasury Bills despite decline in yields [interest] for liquidity purposes to manage mid-term access,” he said, noting that between June and December 2022, more than 22,000 people had applied and accessed their mid-term benefits thus creating the need for more liquidity. 

However, Mr Ayota said that whereas there have been some changes, a large chunk of NSSF’s investments still remain in long-term government debt. 

NSSF holds at least 78 percent of its investments in fixed income, 15 percent in equities and 7 percent in real estate.

The Fund remains one of the only institution to mobilise a large pool of long-term domestic capital for development funding, which has partly cushioned government from accumulating foreign debt. 

Short-term government debt is less desirable by investors given its declining yield or interest in the last few months. 

According to the Ministry of Finance February Performance of the Economy report, interest rates on Treasury Bills declined due to reduced demand. 

For instance, during January interest reduced to 9.73 percent, 10.13 percent and 11.02 percent for 91, 182 and 364-day tenors, respectively compared to 10.55 percent, 11.14 percent and 12.15 percent, registered during December. 

“This was partly due to reduced demand from government following the decision to substitute a portion of domestic borrowing with external debt,”said Ministry of Finance. 

Similarly, the report indicates that interest on long term government debt declined for all tenors, with yield on the two-year bond falling to 13.5 percent in January from 16.25 percent in November 2022 while yield on 10-year tenor reduced to 15.39 percent from 17.5 percent in the same period. 

Government borrows from the domestic market through Treasury Bills and Bonds. 
During January, the Ministry of Finance indicated there were three auctions of government securities, of which two were Treasury Bills, while one was a Treasury Bond.

The two raised Shs750.56b (at cost), of which Shs379.04b was from Treasury Bills while Shs371.52b was from the single Treasury Bond. 

Of the amount raised, Shs435.19b was issued for refinancing maturing domestic debt whereas Shs315.37b went towards financing the budget. 

As of January, a total of Shs2.684 trillion has been raised for financing budget items compared to Shs4.965 trillion for the 2022/23 financial year.