Zambia Sells $72.5million worth of Bonds as Yields Soar 300bps (3%) Higher
AFRICAs second largest copper hostspot, on Friday 27 Nov raised $72.5million (Kwacha equivalent) worth of bonds across the entire curve spectrum. With a ZMW1million on offer, bids totalled ZMW725million of which the BOZ absorbed the entire appetite translating to a bid cover of 1.
The auction was in a nutshell 27.5% undersubscribed. Sixty Eight percent (68%) of the appetite was concentrated in the 3yr and 5yr tenor amounting to ZMW494.73million. Bond yields rose for the 7yr and 10yr by 350bps and 300bps to 19.5% and 21%. (1bp = 0.01. 350bps -300bps translate to 3.5% and 3%). This makes the long end of the curve very attractive for those searching for yield on endowment or hedge books.
The interest rate market seems to be pricing in the weariness of an IMF delay and as such government will place heavily reliance on domestic bond markets to raise funding for their projects. The treasury bill auction on Thursday 26 Nov was equally undersubscribed as players reserved their cash for the bond auction in anticipation of higher yields.
Clearly markets are signalling funding strains for the government which makes analysts jittery about what to expect in the November rate decision meeting. All things constant inflation is fairly low at 6.4% making Zambian bond yields very attractive to offshore players.
Zambia’s second largest denomination used as legal tender