Bank of Zam­bia In­creases Bond Auc­tion Size in 2018 as Gov­ern­ment Bor­row­ing Ap­petite Swells

Zambian Business Times - - FINANCIAL MARKETS -

BANK OF ZAM­BIA on 18 De­cem­ber no­ti­fied the mar­kets that it would be in­creas­ing its auc­tion size on bond of­fer­ings by 65% to ZMW1.65bil­lion. This sig­nals an in­crease sale size re­flects a rise in gov­ern­ment bor­row­ing ap­petite. The last bond sale of 2017 saw ZMW2.1bil­lion ap­petite in ag­gres­sive bids of which ZMW1.27bil­lion was ab­sorbed with the 3yr, 5yr and 10yr tenors ac­count­ing for over 82% of the of­fer­ing. With fad­ing hopes on an IMF USD1.3bil­lion pack­age the gov­ern­ments only source of fi­nance asides tax­a­tion will the do­mes­tic money mar­kets through trea­sury bill and bond sales.’

The im­pli­ca­tions of this in­crease are as fol­lows:

• Gov­ern­ment bor­row­ing needs to fund its ac­tiv­i­ties has risen sharply and that we can ex­pect more over­crowd­ing of the do­mes­tic money mar­kets at the ex­pense of SME bor­row­ing;

• Yields on the gov­ern­ment bonds will be pres­sured to rise higher to make it at­trac­tive for play­ers to subscribe

• The mar­ket could be headed to­wards a re­peat of the ‘2015 Zam­bezi liq­uid­ity crunch’ which spi­ralled in in­ter­est rate hikes as liq­uid­ity will be mopped from the sys­tem; Clearly we see that the time cop­per was at $4,331/ton credit spreads on the 2027 and 2022 were in the range of 1,241bps or 12.4% above US trea­sury while at $7,188/ton (now) the spreads are 351-453bps or 3.5% -4.53% which is roughly an 8%-9% ap­pre­ci­a­tion on Eurobond pric­ing.

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