Rosy but thorny is the theme that market analysts see in the Zambian fixed income and term debt markets. The sweetest point on the Kwacha fixed income curve, the 5 year point, is now paying 32%. Locking liquidity in five year paper will now earn you 32%. Friday 23 August debt sale saw bids that successfully pushed yields a 175 basis points wider to 32% while other tenors infinitesimally moved. The move in the 5 year was anticipated by analysts with inference to the 1 year treasury bill that edged 75bps higher to 27.5% in last Thursday’s auction.
The secondary market price discovery mechanism has for (2) months persistently signaled overvalued Kwacha fixed income assets by spreads of between 250-300bps. The performance of the the 5 year bond point is only but a correction and repricing of the money demand curve given the perceived sovereign risk.
With 5 year bonds paying 32%, term debt for new credit booked, will reprice for higher in a pricing spiral effect on corporate balance sheets. Despite the monetary policy rate remaining unchanged at 10.25% as announced on Wednesday 21 August, the credit spread for term funding just widened by the margin of the uptick. The government security fixed income demand curve is a key determinant of the cost of term debt in the corporate banking space.
BT Research Team