Erasing what was a good start to the week, when the copper currency, the Kwacha rallied, to highs last seen on Oct.10 in thin trade as miners sold dollars to meet month end perks, the Kwacha has erased the pre x-mas profits booked as energy funding need resurface. As though 26 December not being a holiday in Zambia, the energy regulator boxed consumers with a brace of energy tariff hikes in fuel and electricity. The last Friday of 2019 recorded the worst bond performance of the year raising only K57.7million in cash terms of the K1.1billion on offer.
Appetite was anemic at K253millon of which only K102.3million was allocated in nominal terms translating to bid cover ratio of 12%. Ahead of the bond sale liquidity was very weak given the earlier cash reserve requirement effect which saw K1.6billion exit circulation as monetary conditions tightened. Other drivers of cash were tax payments in excess of K250million contributed to the liquidity crunch that sucked purchasing power from the fixed income sale.
Yields for the medium term (2-7yr) buckets were unchanged but repriced 350bps lower in the 10yr to 23.5% as the 15yr bond ebbed 100bps wider to 29%.
Friday 27 December totals the bond subscription to 35% from 84% a year ago outperformed by treasury bills whose subscription improved to 86% compared with 74% in 2018. Risk appetite skew for the year has been towards shorter dated higher yielding assets than longer dated bonds given the uncertainty painted by fiscal posture of the sovereign.
The Kwacha Arbitrageur