With one and half yards (K1.5 billion) of liquidity as measured by aggregate interbank current account balance on 28 January, the Bank of Zambia will be looking to raise K950million in treasury bills in the third auction of the year on 30 January. Will there be adequate purchasing power into this debt sale? Given the rising sovereign risks, market players will be looking for yield repricing opportunities to factor in perceived fiscal posture.
Speculative traders will look for mark to market opportunities to arbitrage the secondary market pricing. The two government security T-bill sales have seen one year money ebb 50 basis points higher to 28% but after tax yields still remain fairly unattractive compared to 1 year Non Deliverable Forward (NDF) rates for offshore players.
The three undersubscriptions posted this year so far already spell funding deficits using the domestic market which remains a key source of concern for the MinFin. A rising inflation environment given the widening energy price risks could potentially narrow the premiums paid to players for taking sovereign risk.
Despite noise around fiscal imbalances, this debt sale stands a very good chance of absorbing all assets up for sale by the central bank with a skew towards the one year which is lucratively priced at 28%.
The Kwacha Arbitrageur.
