The central bank in Africa’s second largest copper producer sold K1.3bln in treasury bills in a debt sale that was oversubscribed with bid cover ratio at 1.91. With cash flush markets north of K2.25bln, the Bank of Zambia absorbed 57.6% of this which was housed mainly in the 1- year which paid 25 basis points lower at 28.7501% while the 9 month tenor attracted K370.7mln at 26.9999%. This is the fourth consecutive oversubscription.
Thursday 04 May outcome reveals a risks skew towards shorter dated higher yielding assets compared to long dated fixed income (bonds) evidenced by the deep undersubcription recorded on 29 May 2020.
Read more: Zambia sells $11mln bonds as sovereign risks dour
Despite an elevated term structure of interest rates the one year tenor have slid 50bps so far from highs of 29.25%. With rising inflation given currency volatility and energy challenges pressure for yields to climb has persisted. The central bank has been active in open market operations living its pledge as per stimulus for financial sector stability in disease pandemic era. Expectations have been that yields could climb down significantly if the Bank of Zambia credit line is tapped by commercial banks that could be looking to reprice their balance sheets and cost of funding. However the only inhibitant will be rising borrowing appetite by the government which is poised to counter push yields higher.
The 91 day treasury bill repriced 100bps higher to 17.4999% whose uptick is deemed as a long overdue correction especially that it has been the most illiquid tenor for years. On the upside, a decline in curve tenor yields signals the momentum around lower funding costs which is positive for a suppressed market.
The Kwacha Arbitrageur