Amidst a disease pandemic that has brought economic activity almost to a halt, market players currently reflect risk skew towards shorter dated higher yielding government securities. With 2 yards of Kwacha assets on offer in the week ending the 24 April, the central bank in Africa’s red metal miner recorded higher appetite for shorter dated (=>1year) assets than fixed income securities.
T-bills more attractive and less risky. The Bank of Zambia recorded a 129% bid cover ratio in Thursday 23 April Treasury bill sale raising K1.2billion in cash terms of the K950million of short dated assets on offer. Demand for paper was in excess of K1.5billion with K600million liquidity from maturities being reinvested. Of the K1.2billion sold, about a yard was housed in the 1year yielding 29.25%.
No purchasing power in bond sale. Which such an overwhelming outcome in Thursdays sale, Friday 24 April was expected to be deeply undersubscribed given the uncertainty in the long term. The central bank was only able to house K106.2million of liquidity of the K1billion of assets on offer recording a dismal outcome. Bids totaled K205.3million of which only about 52% were absorbed given tight liquidity conditions. The deep undersubscription deepens the government funding gap.
With the K10billion central bank life line facility to commercial banks to absorb COVID19 shocks, the government security is forecast to ebb lower given the lean pricing of 100bps above benchmark interest rate. This will provide interesting trading carry opportunity in mark to market to gains.
The yield curve remained flat save the 15 year that priced 150bps higher to 32.5%.
The Kwacha Arbitrageur
