Africa’s second largest copper producer had its ultimate bond sale of the year 2022 on Friday December 23rd. A far better subscribed offering than the last two months that averaged 35%, Fridays outcome was an improved 57% subscription. Of the K2.6 billion assets offered and bids a billion Kwacha shy of the sale amount, the Bank of Zambia successfully sold K1.5 billion bonds with 87% skewed between 2-5 year tenors.
Yields were unchanged ranging from 17.5% (2 year) to 25.4% in the mid (5 year) to 27.75% on the longest tenor (15 year). Against expectations the Kwacha curve has delayed in climbing down given fiscal liability sovereign restructure delay.
The Southern African nation remains in the plethora of a debt restructure delay that continues to set the theme for appetite in the fixed income market. The December sale saw concentration in the shorter of the long term end with more distant tenors recording marginal activity. This hypothesis is supported by minimal move in the exchange rate in the week.
Market players in the local circumference are caught up in uncertainty in interest rate trajectory given optimism surrounding debt restructure in 1Q23 and easing rate hikes by the US Fed as it successfully tames inflation. Offshores still are risk off and prefer holding their liquidity in gold and dollar denominated assets which are safer haven in nature, given the chaotic nature of the global macroeconomic landscape.
READ ALSO: World Bank eases Zambia’s Debt Distress with $100million Concessional Credit through the IDA
Zambia was visited by the International Monetary Fund team from November 30 to December 7, 2022 while the World Bank on 21 December approved $100 million concessional funding under the International Development Association to ease the copper producers distress position. The recent developments point to progress in the copper producers journey towards restoration of fiscal fitness. Other themes likely to affect fixed income markets are changes in pension policy allowing for 20% of savings cash-out which in turn will require funds to be liquid. Should this assertion hold markets a likely to see a shift towards shorter dated assets.
The Kwacha Arbitrageur
