Namibia’s domestic government debt increased by 1.09% in July, rising from N$119.02 billion in June to N$120.32 billion.
The primary driver of this growth was the increase in fixed-rate bonds (GCs), which expanded by N$1.05 billion to reach N$70.99 billion. Inflation-linked bonds (ILBs) also contributed to the overall debt rise, increasing by N$120 million to a total of N$9.14 billion.
Treasury bills (TBs) saw a more modest increase of 0.31%, with outstanding amounts growing from N$40.06 billion to N$40.18 billion. However, within the treasury bill segment, the outstanding debt on the 91-day TB experienced a decline of 3.59%, reducing to N$4.09 billion, despite the overall upward trend in treasury bill issuance.
Throughout July, yields across the four treasury bill auctions declined by an average of 6.72 basis points. The six-month tenor experienced the most significant drop, decreasing by 8.46 basis points, while the three-month tenor saw the smallest decline, with a reduction of 2.96 basis points. The spread between Namibian and South African treasury bill yields narrowed during this period, as Namibian benchmark yields experienced a steeper decline. South African treasury bill yields fell by an average of 30.5 basis points month-on-month, bringing the spread between the two to an average of Just six basis points by the end of July.
If this downward momentum continues, it is anticipated that Namibian benchmark yields may soon overlap or even surpass local yields in South Africa. In July, the supply of government bonds increased compared to the previous two months, which is typical for periods when coupon payments are due.
Investor interest was particularly strong in the intermediate segment of the yield curve, which also has the highest outstanding debt among fixed-rate bonds. The GC32 led in terms of debt, with N$6.79 billion outstanding, followed by the GC30 and GC35, with N$6.58 billion and N$6.42 billion, respectively. During the switch auction conducted on 3 July, the Bank of Namibia successfully switched N$287.09 million of the GC24. However, no switch auction was conducted for the GC25 during this month.
In the secondary market, trading volumes declined to N$171 million in July, down from N$225.97 million in June. Demand remained strong for intermediate-term bonds, particularly for the GC27 and GC32 bonds, which recorded the highest trading volumes of N$32.8 million and N$32.05 million, respectively. As a result of this strong demand, yields across all GC bonds dropped by an average of 44.75 basis points.
Following the Fed’s lead, South Africa is expected to initiate its rate-cutting cycle in September as well, with a total reduction of 75 basis points anticipated over the cycle. Given the currency peg between Namibia and South Africa, it is projected that Namibia will also begin reducing rates toward the end of this year, likely aligning its repo rate adjustments with those of South Africa to maintain the interest rate differential. –Simonis Storm Securities
