It is a very difficult prediction to make but given the ‘stochastic yet probabilistic’ nature of markets, risk averse players especially offshores are expected to bid high.
Global macro backdrop has fueled uncertainty which by default is making emerging markets sentiment levitate as offshores demand more and more of risker assets. Zambia, Africa’s second largest copper hotspot will have its first fixed income government debt sale with K1,650million on offer. Price discovery in the secondary market reveals a repricing of the previous term structure of interest rates at spreads of 400-600bps below last Decembers levels.
Will the curve reprice? The answer is, it is every traders ideal expectation….In reality, It is a very difficult prediction to make – not a crystal ball – but given the ‘stochastic yet probabilistic’ nature of markets, risk averse players especially offshores are expected to throw the dice around and try their luck with bids reflective of Zambia’s sovereign risk spreads. Should these bids be absorbed in Fridays offering, the curve will surely reprice. But on the other hand inferring from the 1-year treasury bills used as a market proxy for bonds, it would not come as a shocker if bond pricing could be unchanged because historically the local pension funds has been known to distort market expectations in the quest to manage interest rates. The state pension funds is the biggest driver of the bond market and as such its investment decisions shift the dial easily.
Its a very interesting spot on the Zambian money market calendar with a rate decision expected on 20 Feb (today) at 10.30am, bond auction on Friday 22 Feb and treasury bill auction pretty much 6 days later next week whose pricing is currently more attractive than the fixed income asset curve. Investors behavioral expectations are likely to be shaped by these key events.
Business Tele-Market Wire Research Note to clients
The positive out of this is that, if the gold rush for kwacha assets holds, the kwacha could be on the front foot on account of flows well ahead of Friday. Investors’ minds could also be clouded by the treasury bills auction next week at which it is guaranteed that higher yields are payable for shorter duration assets which has shaped investor behavior but has been cited by analyst as paralyzing the bond curve.