With the Kwacha bond index a few points below an all time high of 290.4, the central bank in Africa’s red metal hotspot could see increased interest in its bond sale on August 19, ahead of strong optimism surrounding widening odds of a deal with the International Monetary Fund. The Bank of Zambia will seek to raise K2.6 billion in a 2,3 and 5 year re-issuance while the rest of the tenors will be fresh issuances. The bond sale comes two days after the penultimate rate decision meeting of the year 2022 in a period that markets are fairly more optimistic about concluding a bailout deal with the IMF.
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Bond index up 9.5% in ZMW and 13.3% in USD terms
The Kwacha government bond index is currently at an all time local currency high of 902.5 up 9.47% year to date and 13.33% higher year to date in dollar terms. Supporting the attractiveness of the fixed income market is a 20% stronger foreign exchange market performance taking a cue from widening sentiment. Zambia’s government securities remain one of the most attractive assets from a yields perspective given the current state of the global environment marred by excessive inflation sending real returns underwater.
Kwacha bonds are prices in the 20s ranging between 22% and 27% for the 3-15 years with decent premiums about single digit inflation for local investors and stable currency for offshores. Yields started to edge higher after June following market weariness of an IMF wait. Its been 19 months since the Southern African nation formally requested for financial assistance from the Washington based lender.
Liquidity conditions remain fairly decent and north of K2.5 billion as measured by the interbank aggregate account balance. Key drivers of liquidity have been tax payments and BOZ market intervention in the currency markets to stabilize foreign exchange pressures.
With the current monetary policy tightening globally, the Kwacha debt sale could attract offshore liquidity in view of an improved outlook especially for longer dated paper.
As at 2.43pm in the capital Lusaka, the currency was trading for K16.1347 for a unit of dollar.
The Kwacha Arbitrageur