LUSAKA – Five year Kwacha bonds are still very attractive for surplus units searching for yield but are signaling repricing risks in the term debt markets that referent government security curve. In Thursday 17 October fixed income sale by the central bank in Africa’s second largest red metal producer, Zambia, 5 year bonds repriced 50 basis points higher to 32.5% from 30% in the last primaries.
The 5 year was the most sought tenor in today’s auction with K665million in bids accounting for 53% of the total market appetite of which only K331million was absorbed. Overall auction subscription was decent despite undersubscription at 64%.
An uptick in bond yields signals rising repricing risks in the term debt markets by a similar amount. Commercial bank price balance sheet extension to clients using the term structure of interest rates as benchmark. Suffice to say no commercial bank would price a facility below 32.5% lest they lend underwater.
Other tenors that repriced higher are the 15 year point that printed 100bps higher to 21% which is however 1,100bps lower than the current secondary market rate of 32%. Three year yield rate were bid for successfully at 28.75% a 100bps lower ebb from last primary auction.
The Kwacha Arbitrageur
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