The current chaotic state of the global environment is posing an array of short term risks that could fret offshore players in locking liquidity is shorter dated tenors in the upcoming Kwacha fixed income debt sale earmarked for Monday March 21, 2022. Grappling with a debt restructure whose time lines remain uncertain, geopolitical tensions have nonetheless seen crude prices at highs last seen in 2008 – potentially fueling inflation pressure. The risk landscape in the short term, remains fairly elevated and is compounded by the recent US Federal Reserve Open Market Committee (FOMC) rate hike to curb inflation, does breed immense asset sell-off pressure and a strong dollar passing the brunt to be borne by emerging and frontier market currencies, the Kwacha inclusive.
However the global uncertainty could mixing signals in Monday next week’s auction with the odds of long dated asset appetite skew scaling higher not only from a positive long term economic recovery view on the red metal producer but also because short term risks from current global risk posture are very high.
The Southern African nation did postpone its third bond sale for the year as Friday March 18 was a public holiday occasioned by a state funeral in commemoration of the fourth republican President Mr. Rupiah Banda. The central bank nonetheless moved the debt sale to the next business date. On offer is K2.6 billion for which analysts remain confident there will be adequate purchasing power in the auction from some offshores taking long positions on Zambia and the local players. However new money into subsequent debt sales is likely to fade as interest rates soar in the US making it more attractive for offshore players seeking dollarized yields.
The Kwacha curve could adjust higher on the shorter end inferring from secondary market trades that have seen higher yields above the ruling primaries by 125 to 175 basis points at between 19.25%, to 24.0% for the 2yr to 5yr tenors.
The Kwacha Arbitrageur