EURO BONDS: Yields on Zambia’s dollar bonds were 13 basis points (bps) wider, 5 basis points (bps) higher than the Sub-Saharan Africa Euro bond average of 8 bps. Fueling this widening in credit default spreads was dampened demand for riskier assets as the US jobs report printed higher figures beating analysts’ expectations of 160,000 versus the actual 224,000. This bullish jobs readings dented market expectations of a rate cut as the US Fed meets this July which impacted dollar denominated assets.
PRIVATE SECTOR PULSE: Zambia’s June Purchasing Managers Index – PMI readings were slightly better at 46.6 from 43.9 in May. The copper producers manufacturers pulse has been under water for the past 11 months. (50 sets the borderline for contraction and expansion). June conditions slightly improved however the economy grappled with lack of new orders and delays in payment receipts.
KWACHA BONDS: Local currency bonds were 40 bps higher on 05 July reflecting dampened appetite for riskier assets a show case of desperation among offshore players. More sell offs are forecast this week well ahead of the US Federal Open Market Committee – FOMC rate meeting. Markets saw bonds offers come off with yields widening in the 2 year tenor which traded at 35.5% a month ago to current levels of 28.0%. However this tenor was priced 125bps higher at 29.25% while 5 year paper sold for just under 30.0%. Expectations are that Kwacha secondary market yields will exceed 30.0% as offshore players reflect desperation in light of a stronger dollar environment.
SWAPS: Swaps were unchanged with infinitesimal moves with overnight rates at 13.75%, the lowest seen in a while signaling cheaper funding for offshore players as they seek to access Kwacha liquidity.
LIQUIDITY: Cash markets remain tight which has in part supported the Kwacha. Cash funding the taxation payments to the tune of K2.3 billion has crunched the markets causing a forecast net short position of K100 million highly likely forcing the central bank presence in the Open Market Operations (OMO) to manage interest rate uptick.
CURRENCY: Markets opened at 12.825 for a dollar after having closed 12.775 in the previous session. The market has seen a flurry of conversions aimed at raising Kwacha funding for provisional and mid-month tax obligations.
Compiled by Kondwani Phiri – BT Analyst