LUSAKA (The Business Telegraph) – The central bank is Africa’s copper producer Zambia sold K446million worth of fixed income government securities in a debt sale with K1.5bln on offer translating to 30% subscription. In these extraordinarily uncertain times, risk skew remains towards the shorter end of the yield curve with K322.16mln housed in the 2year tenor whose yield repriced 100 basis points higher to 31.9%.
Bond lag treasury bill yield. Compared to the short of the Kwacha term structure of interest rates, bond yield remain static in elevation. Treasury bills have see significantly lower yields in the last few weeks while the longer end of the curve lags given higher premiums for sovereign risks. A cocktail of factors ranging from balance sheet expansion programs to liquidity injections in Open Market Operations to absorb COVID related liquidity risks have supported fall in yields for bills.
Positive offshore sentiment needed to lower bond curve. Offshore appetite for Kwacha bonds has slowed signaling the need for fiscal consolidation in the copper producers fiscal budget for 2021 as well as an emergency IMF type of package to cushion some of the COVID related shocks which have amplified fiscal risks.
Kwacha bears persist. Currency risks however have widened with the Kwacha 2.8% weaker against the dollar in the week a confluence of factors including the autopsy effects of dollarization of mining taxes which has reduced the supply of foreign exchange on the market, rising energy and agriculture demand. These have exerted pressure on the local currency at a time when reserves remain fairly low. The Kwacha opened today at 19.100 and closed trading at 19.225 levels.
Zambia’s MinFin will look to fund its fiscal programs using the domestic money markets as it aims to curb external debt. Under-subscriptions could widen the funding deficit for the authorities.
The Kwacha Arbitrageur