- Offshore players look to higher yielding assets at spreads above NDFs;
- Yields were unchanged save the 1-year that rallied 50bps;
- Appetite totalled K1.73billion with 84% in 9m to 1yr paper;
Offshore players are becoming more and more attracted to Kwacha government assets given currency stability and high yields in the the 9-month and 1-year tenors paying 23.0001% – 23.5%. Africa’s second largest copper producer, Zambia recorded a healthy demand for its short dated assets in a treasury auction held on 31 Jan. The Bank of Zambia (BOZ) sold K1.14billion worth of 3-month to 1-year debt in a 120% oversubscribed sale. On offer was K950million across the term structure spectrum with bid cover ratio of 1.23x.
Appetite for Thursdays offering ballooned to K1.73billion, the highest seen in 2019 with 59% (K1billion) in 1-year, 23.5% yielding assets with 27% in 9-month, 23% yielding assets. Other tenors had but anaemic demand. Demand in all the other tenors but the 1-year was absorbed with only 61% of the 365 days asset allocated. Yields edged lower in the 1-year by 50bps from fortnight ago levels.
Read also: Global uncertainity fuels African dollar asset rally
Stability in currency
The Kwacha has been fairly stable at 11.95 levels with minimal fluctuations in Q1:19. Dollar demand to fund petroleum purchases and payment obligation in the agro sector has equalised supply from the mines especially from corporates looking to raise Kwacha funding for salary obligations.
NDF pricing below t-bill curve makes Kwacha assets appealing
With non deliverable forward rates 250bps below current yields, Kwacha treasury bills have become very appealing to offshore players seeking for yield to house excess liquidity. With global uncertainty and macro backdrop, interest in higher yielding African assets will be seen this year. The market has also seen appetite for bonds but of shorter dated terms to maturities.
As at market close, aggregate interbank current account balance was just above K800million with the K1.14billion adding to the stock of liquidity to meet K1.55billion of maturities.
