Kwacha liquidity on 15 February, capped appetite for government securities to K752million, a 56% decline from demand seen in the previous treasury debt sale at K1,730million. Bank of Zambia (BOZ) the central bank in Africa’s copper producer, absorbed the entire appetite with 78% of the government debt securities totaling K585.5million housed in the 1- year tenor yielding 23.5%, while the next attractive tenor, the 9-month absorbed K151.4million accounting for 20.1% of the auction allocation. Interest yields were unchanged. Market liquidity in part, due to the BOZ’s absence in open market operations (OMO), was the key driver of the capped demand for government assets.
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With a week exactly to the first bond sale of 2019, treasury yields remain priced at premiums above the Kwacha fixed income paper which concerns players around the attractiveness of the government debt sale. Expectations are that this sale will be feeble and that only players with appetite for longer dated assets such as pension funds will pack their liquidity in 10-year that is paying 23.5%. The view remains that players that couldn’t leverage off the treasury auction on 14 February, will have another chance at 23% yields for a year in the fifth (T-bill) auction for the year.
Kwacha assets remain fairly attractive given the stable currency and wide credit risk premiums in light of a weak global environment.
The next auction is in a fortnights time on 28 February.