Six days after Zambia defaulted on its coupon payment of $42.5million on its dollar bond maturing 2024, the central bank continues to see appetite for one year government securities paying 24.5% in the 24th T-bill of the year.
With liquidity as measured by aggregate interbank account balance north of 3 yards in local currency terms, the Bank of Zambia was able to sell paper worth K1.26billion a few Kwachas shy of what was on offer, across the curve. Of this amount K612million was housed in the one year tenor while the next sought for risk bucket was the 3months with K395million yielding 14.0%. Bids however totaled K1.45billion for this treasury bill auction.
Against the odds, post default it was expected that interest in selective default rated paper would dwindle by both on and offshore players as currency pressures persist in the labyrinth of uncertainty. For commercial banks taking additional risks attracts a heavier risk weight according to International Financial Reporting Standard Number Nine (IFRS9).
The treasury bill sale came a day after Christopher Mvunga’s debut at which rates were kept tad at 8% while being weary of currency risks posing threats to inflation target. The central banks tone in its communique remain firm on the need for Zambia to restructure its debt successfully as the major determinant of financial sector and price stability going forward.
On November Friday 13, BNP Paribas suspended custodial services to Zambia in a move that will likely brew simultaneous government security and currency sell-off pressures in the period.
Money market debt sale outcomes will be very critical for Zambia post default as they will spell the fiscal domestic funding momentum given very limited external funding sources for the copper producers budget.
The Kwacha Arbitrageur
