Zambia’s central bank sold K797.7million ($35.5million) worth of treasury bills in an undersubscribed auction shy of the K1.3billion of assets of offer. This was the last T-bill sale of the quarter. Despite an aggregated interbank liquidity of K3.3billion, the market has continued to see persistent risk skew behaviours with preference for 1-year bills that took up 75.0% (K598.3million) of the auction yielding 25.75%, a 295bps above March inflation.
However, this outcome could have been overshadowed by last Fridays bond sale that saw the central bank record the strongest performance of the quarter but rising inflation still can not be ruled out as the spiral continues to erode margin sinking the bills underwater further.
Yields remained static across the tenors but spiralling inflation continues to signal bearish interest rate trajectory which could erode margins on trading books on a mark to market basis. The treasury bills curve has latitude to climb higher, in correction, between 280-880bps (adjusted for inflation).
It is likely that the central bank will extend its 1Q21 target into the second quarter of the year with bond sales auction target at K1.5billion and treasury bills in lots of K1.3billion.
The Kwacha Arbitrageur