BOZ observes increased appetite for 1year Kwacha Treasury Bills
“Short dated treasury bills are less risky because the duration is lower hence they mature faster than having to lock in bonds in an interest rate uncertain environment. However, we must also be cognizant of the fact that the 1yr treasury bill is a benchmark for fixed deposit rates for banks that are struggling with liquidity, hence a spread above the 16.5% will price a fixed deposit for the same tenor to attract depositors. Chief Market Analyst – Zambia Business Times
BANK OF ZAMBIA has continued observe increased appetite for 1-year Kwacha Treasury bills. In the auction held on Thursday last week - 18 January, the regulator registered ZMW963million demand for 1-year government debt out of the ZMW1billion in bids accounting for 93% of the T-bill sale. The reason for this rise in appetite is on the back of the yield of 16.5% the 1-year tenor is paying. The one year has been attractively priced for over a quarter which has attracted most players that are cash flush to lock in a guaranteed 16.5% yield. The Bank of Zambia sold ZMW1billion in an offering that was 8.5% oversubscribed. Forecasts on rates in the subsequent months, inferred from the 65% increase in bond auction size, is that bond yields will trend bearishly (rise) as government overcrowds the domestic money markets to fund its borrowing needs to meet a wide spectrum of obligations to include dismantling of arrears. This is looked at in the wake of a delayed International Monetary Fund – IMF $USD1.3billion program.
Against all odds the 9m treasury bill yield edged 110bps lower to 11.89% while all other tenors were static. The one-year treasury bill being the longest tenor on the short end of the Kwacha treasury bill curve is used a proxy for what to expect in the bond auctions.
The next auction will be held under a fortnight on 01 February 2018.