LUSAKA (The Business Telegraph) – With K4.7bln of market liquidity into the fifteenth treasury bill sale of the year, the Bank of Zambia – BOZ sold K1.8bln worth of assets absorbing part of the K2.6bln appetite in bids. This is the second debt sale after the central bank widened its assets offered by 37% to K1.3bln from K950mln while simultaneously abolishing the 40% borrowing limit above the auction size.
Of the amount sold in cash terms, slightly over a yard was housed in the 1 year whose return narrowed by 50 basis points to 26.0% and so increased interest from offshore players searching for yield as the global economy remains cash flush. The strongest rally was observed in the 9month tenor which trimmed 200bps to 24.0% while the 6months eased 150bps to 18.5%. Three month cash will now earn 15.0% easing 102bps from a fortnight ago.
The short end of the Kwacha term structure of interest rates has continued to come off as markets remains long cash from central bank presence in Open Market Operations – OMO. Zambia’s paper is attractive offshore players boosted by improved sentiment as the copper producer takes strides to restore fitness through debt reorganisation and talks with the Washington based lender for Rapid Credit Facility – RCF and eventually a fully fledged funded bailout program.
“This is Zambia’s silver lining that will attract more flows through the veins of the red metal producer to rekindle economic activity, Economics Association of Zambia – EAZ National Secretary,” Mutisunge Zulu said in a note on Behind the Markets on Money FM show on the morning of 16 July.
Risk skew still remains towards shorter dated higher yielding assets compared to longer dated bonds as cumulative subscription surpasses 130% for treasury bills and remains 43% for bonds, he said.
Read also: BOZ in record T-bill sale as yields rally record 150bps
Earlier in the week, Minister of Finance Dr. Bwalya Ng’andu in a ministerial statement told parliament that COVID had impacted revenue streams for the fiscals by K17.2bln (circa.$1bln) and that expenditures had ebbed higher K9.7bln. This aligns with the BOZ targeted K13.6bln ($750mln equivalent) for 3Q20 following a 37% increase in government security offering size. Zambia is set to recede -5.0% as per IMF Article IV Mission report exacerbated by amplification of fiscal risks by disease pandemic effects.
The Kwacha Arbitrageur