With 10 year treasuries at 16 year highs given the state of the global economy following 12 month of monetary tightening which has curbed inflation, offshores are looking to emerging and frontier markets for higher yields despite the underlying sovereign risks. One such darling to offshore players is Africa’s red metal hotspot Zambia currently in the middle of debt restructure negotiations.
In a government debt sale on 29 September coinciding with presentation of its 2024 national budget, the Bank of Zambia sold K2.6 billion worth of bonds in an offer whose market appetite saw K6.9 billion worth of interest. Theming last Fridays sale was decent pulse in the 10 – 15 year tenor representing 41% of the bids at face value as players take a long term view on Zambia recovery prospects.
Yields ebbed 75 basis points for the 10 and 15 year respectively while the 5 and 7 year saw a 100 bps and 80 bps decrease leaving traders mind boggled about if this is the genesis of a falling interest rates. However rising inflation given a wobbly local currency amidst and ballooning energy prices could point to a likely benchmark interest rate hike in the November monetary policy committee session.
Across the curve spectrum, appetite was recorded in the 3 and 5 year buckets as institutional investors took up assets on offer. The state pension fund has less outflows from the short term liabilities from the earlier announced cash in on retirement savings policy that exerted pressure earlier in the year. This is was evident in the high rejection rates across the board which could explain falling yields in this auction.
Markets will now seek clues as to when the third extended credit facility disbursement of $188 million will actualize given delays in signing of memoranda of understanding with bilateral creditors. The upside risk to this could be asset sell off pressure was markets grow weary of the wait. Foreign exchange currency supply remains constrained as mining production tries to levitate while agriculture input season traditional exacerbates demand into fourth quarter of the year.
The week head, there is very little support forecast for the Kwacha and as will continue to reverberate between K20.8 and K21.2 for a unit of dollar.
The Kwacha Arbitrageur
