Africa’s second largest copper producer Zambia has for the second month recorded surging interest in its government paper as offshores remain bullish on its long term outlook. The Southern African nation attracted K5.1 billion worth of nominal bids in its fixed income sale held on Friday 18 August for which the central bank accepted K4.6 billion worth of nominal appetite.
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Zambia’s bonds are a good carry trade given the current yields in the 20’s that most players seeking to house their liquidity. In the middle of a debt restructure, the copper producer continues to attract confidence in its economic recovery process that has attracted global money looking for a home in a safe jurisdiction. Despite delays in the restructure process marred by completion of signing of memoranda of understanding a key determinant of the private debt reorganization process, investors are more optimistic than ever concerning the sovereign posture improvement of the copper producer.
Fridays bond auction revealed a strong appetite skew on the longer end of the yield curve with close to K3.6 billion of the bids in the 10 – 15 year tenors paying 26.75% and 27.75% respectively.
The Kwacha term structure of interest rates remained unchanged as yields exhibit stickiness upwards due government financing shortfalls.
For local players, the current bond yields provide decent cover and compensation for the inflation levels at 10.3% making real yields positive. Moodys rating agency upgraded Zambia’s local currency long term issuer rating to Caa3 from Ca due to the strides the sovereign has taken to earn it bilateral debt treatment. However the rating agency cited weak governance, cash flow position and exposures to environmental headwinds (impacting agribusiness and energy generation) continue to weigh.
The red metal producer continue to grapple with foreign exchange risk as dollar supply concerns persistent causing demand backlogs.
The Kwacha Arbitrageur
