As appetite for sovereign paper dithers, Kwacha long dated fixed securities (bonds) continue to bear the brunt of Zambia’s deteriorated credit rating. A risk theme furthering from the COVID year 2020 has extended to this year with more interest in shorter tenured assets such as treasury bills given duration risks.
The central bank sold K453.3million worth of government bonds in a deeply undersubscribed debt sale with an 80.0% skew towards the 2-year paper housed at 32.0%. This is the second subscription haircut recorded in 2021.
On offer was one and half yards in Kwacha terms with bids in excess of K1.6billion with market liquidity north of K1.4billion. Secondary market trading is at premiums above the current primaries as players price-in sovereign risks. This could suggest that primary yields are still overvalued in price.
Rising inflation has continued to erode compensating premiums for duration risk. Treasury bill yields save the 1-year are underwater 150-750 basis points as the inflation spiral negate real yields on shorter dated assets.
Read also: In 1Q21, Zambia’s central bank will seek to raise $600mln in govie debt sales
According to the central bank prospectus, Bank of Zambia will seek to raise K12.3billion ($575million) worth of government securities in 1Q21. Bond sale under-subscriptions reflect shortfalls on the financing program that MinFin will seek to achieve.
The Kwacha Arbitrageur
