The central bank in Africa’s second largest producer, Zambia has continued to observe increased interest in one year treasury bills despite narrowing premiums in the wake of spiraling inflation. The Southern African nation recorded a 59-month high of 22.2% last headlined at this level in March 2016. In a T-bill sale held on February 25, with K1.3billion on offer, the Bank of Zambia sold slightly under two yards in Kwacha terms absorbing demand in excess of K2.2billion.
Read also: Negative real yields on Kwacha T-bills widen as ‘inflation sprint’ persists for February
Yields were unchanged with the 3m-9m still underwater with returns below inflation save the 1year that remains the most attractive point of the Kwacha demand curve priced at 25.75%. A billion Kwacha of the bids allocated was housed in the one year while the next sought for tenor was the 91-day T-bill paying 14.0% with K400.0million liquidity locked in.
Read: Risk appetite skews away from longer dated fixed income, BOZ in second subscription haircut
Zambia’s currency continues to shave value as dollar scarcity persists on the back of mismatched supply – demand fundamentals and in the week crossed the K22 for a unit of dollar psychological barrier. Earlier on February 17, the monetary policy committee (MPC) raised rates 50 basis points to 8.5% in a stance to curb upside risks to inflation but has seen little fruition as the exchange rate extends its losing streak.
Read also: Despite, widening negative real yields, players ‘gold rush’ 1yr Kwacha returns in T-bill sale
Risk skew remains towards shorter dated higher yielding assets (as opposed to bond preference) as players price in political risk factors in an election year, higher premiums for sovereign risk inferred from higher bidding prices and currency related transmission effects to the money markets. The money markets is forecast to see more treasury bill sales than fixed income paper in 2021, a deja vus of 2020 COVID year.
The Kwacha Arbitrageur
