Africa’s second largest copper producer Zambia recorded increased interest in 5-year fixed income in April 30, bond auction. The tenor attracted bids totaling K722.0 million of the K410 million on offer of which K360 million of appetite was absorbed. Other tenors sought for were the 3-year which was the second preferred with appetite at K471 million part of which K319 million was satisfied. The pulse observed in the two tenors does to some extent reflect risk appetite creeping back into the market given the recent positive outlook of the in the Zambian economy given a Fitch upgrade on the copper producers local currency long term issuer risk rating and widening odds of concluding a bailout package with the International Monetary Fund – IMF.
Despite strong appetite for 3 and 5-year assets, the bond sale was deeply undersubscribed with an allocation in cash terms of K718.8 million of the K1.5 billion worth of assets on offer, absorbing in part market appetite of K1.8 billion.
Kwacha yields were unchanged in Fridays auction. Despite elevated inflation levels which has reduced risk premiums, consumer price index has peaked and as such inflation could be on an easing trajectory. The treasury bills curve remains under water with yields priced way below inflation save for the 1-year bill.
The central bank bond buy – back program continues to generate demand for Kwacha bonds in the secondary market however the spread between the primary and secondary market curve could suggest assets valuation disparities from a price discovery perspective.
Given the current sovereign posture, risk skew will remain towards shorter dated higher yielding assets for duration risk management. Zambia is currently at the cusp of an IMF deal, a precursor to successful debt restructure amidst rising copper prices north of $9,000/MT on the London Metal Exchange – LME.
The Kwacha Arbitrageur