Auction Demand and Cover Ratios
The bid-to-cover ratio is the most widely watched indicator of investor appetite at Angola’s government bond auctions. It measures the total value of bids submitted relative to the amount of securities offered, providing a real-time gauge of market demand for sovereign debt.
How the Bid-to-Cover Ratio Works
The formula is straightforward:
Bid-to-Cover Ratio = Total Bids Received / Amount Offered
A ratio of 2.0x means investors submitted bids for twice the volume of securities on offer. Higher ratios indicate stronger demand and typically result in lower yields (more favorable borrowing costs for the government). Lower ratios signal weaker appetite and may pressure MINFIN to accept higher yields to fill the auction.
| Ratio Range | Market Signal | Implication |
|---|---|---|
| > 2.5x | Very strong demand | MINFIN can tighten yields |
| 1.5x – 2.5x | Healthy demand | Market is well-balanced |
| 1.0x – 1.5x | Adequate but thin | Limited investor enthusiasm |
| < 1.0x | Undersubscribed | MINFIN may reduce allotment or raise yields |
Demand Patterns by Instrument
Investor appetite varies significantly across Angola’s government securities spectrum:
- BT 91-day — Consistently the strongest demand, with bid-to-cover ratios frequently exceeding 2.0x. Banks are the primary buyers, using short-dated bills for liquidity management and BNA repo collateral. The proximity to the BNA policy rate (17.5%) makes pricing predictable.
- BT 182-day and 364-day — Moderate to strong demand, though slightly below the 91-day segment. These tenors attract banks seeking slightly higher yields without materially extending duration.
- OTNR 2-3 year — The most popular OT tenor among institutional investors. Pension funds and insurance companies with medium-term liabilities anchor demand for this segment.
- OTNR 5-10 year — Demand thins considerably at longer maturities. The combination of illiquidity, inflation uncertainty, and sovereign credit risk reduces institutional willingness to extend duration. Bid-to-cover ratios for 7-10 year OTNRs have periodically fallen below 1.5x.
- OTX USD-indexed — Strong demand from investors seeking currency protection, particularly during periods of kwanza weakness. Foreign institutional participants under the Aviso 15/19 framework tend to concentrate in OTX instruments.
What Drives Demand Fluctuations
Several factors influence the strength of auction demand over time:
- BNA monetary policy — Rate decisions directly affect the attractiveness of new issuance yields. An expected rate cut can boost demand as investors lock in current rates; an expected hike may delay participation.
- Oil prices — Brent crude (currently around $74.50/bbl) affects Angola’s fiscal outlook and sovereign risk perception. Higher oil prices improve the government’s debt sustainability, boosting investor confidence.
- FX dynamics — Kwanza depreciation expectations (USD/AOA currently at 914.60) influence demand for kwanza-denominated versus USD-indexed instruments.
- Banking system liquidity — Excess liquidity in the banking system is the single largest driver of BT demand. When the BNA drains liquidity through monetary operations, BT auction demand may soften.
- Global risk appetite — Emerging market and frontier market sentiment flows through into foreign investor participation, particularly for OTX bonds.
Interpreting Cover Ratios in Context
A declining trend in bid-to-cover ratios, even if still above 1.0x, can be an early warning signal. It may indicate that MINFIN is increasing supply faster than demand is growing, or that investors are becoming cautious about sovereign credit risk. Conversely, rising ratios may signal improving confidence or excess liquidity seeking yield.
The cover ratio should be read alongside the cut-off yield. A high cover ratio with a rising cut-off yield suggests that while volume demand exists, investors are requiring more compensation — a subtler form of deteriorating sentiment.
For the latest auction results and upcoming schedule, see the auction calendar. For broader issuance trends, consult the government issuance tracker.