Activity in Botswana’s traditionally subdued secondary bond market has surged in 2024, with the Botswana Stock Exchange (BSE) reporting a 66.7% increase in trades to P5 billion for the year to October 31. This marks a significant uptick compared to the same period in 2023, driven by increased government and corporate bond issuance and heightened investor activity.
Understanding Bonds and the Secondary Market
Bonds are debt instruments issued by governments and corporates to raise capital from the market. The secondary market involves trading these bonds after their initial issuance, enabling investors to buy and sell them as needed.
In its latest update, the BSE noted that government bonds dominated the market, accounting for P4.9 billion in trades, while corporate bonds contributed the balance. Notably, the sole sustainable bond listed on the exchange, issued by Absa Bank Botswana in 2023, recorded trades worth P4.5 million during this period.
Factors Driving Market Growth
Analysts attribute the surge in secondary bond market activity to asset managers actively seeking investment opportunities amidst increased liquidity. The liquidity boost is linked to legislative reforms requiring pension funds to raise their domestic asset holdings from 30% to 50% by December 2027. This mandate is prompting fund managers to pivot towards local investments, fueling demand in the bond market.
Rising Bond Market Capitalisation
The BSE’s data shows that total bond market capitalisation reached P36.7 billion by the end of October, reflecting a 34% rise from the same period in 2023. This growth is primarily due to increased government bond issuance under its domestic note programme, which was expanded from P30 billion to P55 billion in February.
The government’s aggressive borrowing strategy stems from declining mineral revenues and elevated spending pressures. As a result, the market capitalisation of government bonds rose sharply to P30.9 billion by October 31, compared to P22.3 billion a year earlier.
Corporate Bond Activity
Corporate bonds have also seen notable growth, with the number of listed notes rising from 68 in 2023 to 96 in 2024. Trades in corporate bonds more than doubled to P181 million over the reporting period, indicating increased investor interest.
Outlook for the Bond Market
As government and corporate entities continue to leverage the local capital market for financing, and asset managers ramp up domestic investments, the secondary bond market is expected to remain active. The ongoing legislative push for higher domestic pension fund allocations could further enhance market liquidity and drive sustained growth in bond trading.
The BSE’s robust performance reflects its growing role in providing a platform for capital-raising and investment in Botswana, signaling a maturing financial market capable of supporting the country’s broader economic objectives.
