Zambia’s central bank set out to raise K12.3billion through sale of treasury bills and bonds in the first quarter of 2021. This was to be attained through 6-treasury bill and 3-fixed income debt sales. Quarterly performance reveals that the Bank of Zambia raised a total K10.9billion, 11.29% shy of the 1Q21 target with the treasury bills outperforming the bonds, a risk theme dictated by duration concerns in light of of a confluence of factors to include country risk concerns.
Of the K7.8billion of shorter dated assets sold, the central bank raised K8.5billion an 8.5% above budget in 4 over-subscriptions while the other 2 were off the mark by a few million of Kwacha.
The bond sales were dismal as expected at K2.4billion, 46.7% below target and were the key drivers of general deficit for the first quarter.
The Zambian markets continue to observe risks themes dictated by a feeble country risk profile weighed most by pandemic amplified fiscal deterioration leading to a hat-trick of coupon payment defaults on dollar bonds and a generally weak credit rating. This would have ideally priced in the premuims above inflation for treasury bills but the contrary obtains were the short end of the curve remains 180-880bps inflation underwater which could overprice the assets but suffice to say, treasury bills are generally unattractive currently save the 1-year decently yielding 295bps above inflation.
Political risk factors have historically been known to weigh appetite for longer dated assets in a run up to the polls for uncertainty reasons. The recent central bank asset buy-back program has given an adrenaline boost to demand for bonds which explains the performance of the last bond sale, but this could be temporal and will only last as long as the program tenor.
Other drivers of potential bullish performance could be any positives that could come off the Extended Credit Facility (ECF) discussion with the Washington based lender, the IMF.
The article is based purely on open-market debt sale excluding off-market auctions that could have taken place.
The Kwacha Arbitrageur