LUSAKA (BT) – The central bank in Africa’s red metal hotspot, Zambia, on Friday 26 June sold K818.5mln worth of government bonds in a debt sale that was 86% subscribed. With a just over a yard on offer, the sixth bond sale subscription was the best so far year to date following a spate of dismal outcomes exacerbated by deteriorating fiscal posture on the back of balance sheet vulnerabilities and other economic related challenges.
Kwacha curve corrects on the longer end. Yields widened 70 basis points in the 3 year to 32.70% while 10 year bonds repriced 800 basis points 31.50%. Appetite in bids totaled K1.66bln of which K809.11bln was in the most liquid point on the Kwacha yield curve, the 5 year tenor, while decent bids were seen in the 2 and 3 years. Of the total amount absorbed liquidity was housed in the shorter end of the fixed income curve.
IMF talks and Lazard debt restructure boosts offshore bidding. With Zambia having experienced a series of positive steps towards fiscal fitness characterized by a sentiment boost from debt reorganization efforts and above all the Washington based lender International Monetary Fund – IMF being mandated to commence economic program talks with the copper producer, appetite for Kwacha bonds has improved. For most of the year, risk appetite skew has been towards shorter dated higher yielding assets such as the 1year treasury bill paying between 28.0% and 29.25% over the last 8 weeks.
Climb down inertia in funding costs. Funding costs remain fairly high in the 30’s while the treasury bill curve reflected a decline in yields across the demand curve between 50 -125bps especially after the central bank stimulus package. However an array of factors continue to impede the yield rally ranging from increased government spending to slow uptake of the liquidity stimulus package.
The Bank of Zambia has continued injecting liquidity in open market operations to ensure financial stability as COVID credit risks remain elevated. The short end will continue to ease with an expected lag for longer end to follow suit. Friday 26 June bond outcome ebbs higher to 44% the bond subscription rate from 35%.
The Kwacha Arbitrageur