The central bank in Africa’s red metal hotspot last Friday April 29 saw renewed interest in its fixed income offering as players priced in a more positive debt restructure outlook. This is supported by the recent IMF Spring sessions development concerning China’s stance to join Zambia debt restructure creditor club under the G20 common framework. Of the K3.4 billion appetite in bids, the Bank of Zambia absorbed K2.3 billion worth of bonds with significant interest in the 2,3 and 5 year tenors account for 75.0% of the sale. Proceeds of the sale were the second highest in 2022.
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Yields remain toppish with infinitesimal delta as seen in the 5 year tenor that creeped 25 basis points higher to 22.5% while the 2 and 10 year yield sagged 10 and 24 bps to 17.95% and 26.5% respectively. Markets will relentlessly search for clues as what the interest rate outlook will be given the series of positive developments in the countries sovereign posture. Zambia seeks to seal a financing deal with the Washington based lender the International Monetary Fund (IMF) by June 2022.
EXO – ENDOGENOUS FACTORS STILL AT PLAY
Exogenous factors nonetheless still continue to play a key part in appetite for securities with asset sell – off pressure from higher yields in the west as the US Fed takes a red pill to curb persistent inflationary pressure with 6 rate hikes expected this year. This could prove counter intuitive to the forecasted interest in Kwacha assets as uncertainty still clouds the space especially around whether or not new money will flow in to the local money markets given an improved outlook for the copper producer.
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For local investors whose purchasing power is indigenous, an April inflation ebb to 11.5% just widened premiums for taking government risk in lengthened duration by 160 bps while the sentiment propelled currency rally is enticing to offshores that still wish to lock their liquidity in the copper currency assets. The global geopolitical risks are still on the downside expected to breed inflationary pressure as food and commodity prices such as crude remain elevated. The marginal sag in fuel prices is forecast to give temporal reprieve to fuel prices in May while upside risks remain high as the Russo – Ukrainian stand off persists.
Risk skew is still expected in longer dated higher yielding assets (bonds) in preference to treasury bills.
The Kwacha Arbitrageur