Bank of Zambia sells ZMW2.1billion in bonds in heavily subscribed auction
THE BANK OF ZAMBIA sold ZMW2.1billion in bonds on Friday 23 February in an auction which was heavily oversubscribed. On offer was ZMW1.65billion yet bids totalled ZMW3.1billion of which ZMW2.1billion accounting for 67% of market appetite was satisfied. This was the first bond offering of the year 2018 with a 65% increase in size to ZM1.65billion. This bond auction attracted immense appetite for 10yr paper at ZMW1.22billion four times (4x) oversubscription compared to the ZMW300million on offer of which 59% was satisfied. Other tenors that attracted appetite were the 5yr and 15yr that saw ZMW616million (vs ZMW500million on offer) and ZMW467million (vs. ZMW300million on offer) in bids. Yields were infinitesimally changed with 10bps and 52bps decline in 2yr to 16.4% and 7yr to 18.98%. Bid cover ratio for the bond sale was 1.94. See below breakdown of the bond offering:
Zambia’s Central Bank on 21 February announced a further monetary policy easing by lowering its benchmark lending rate by a quantum of 50bps to 9.75% – a 575bps cumulative rate cut from February 2017 – and a further slash on the statutory reserve ratio 300bps to 5% from 8%. This is a move that the BOZ took to force lending rates further downwards which have been cited as being exorbitantly high contributing to the increased stress in the non-performing loan industry portfolio at 12.7% in breach of the BOZ prudential limit of 10%. Markets are currently flush with cash. It is not surprising that yields didn’t edge any higher after the easing monetary policy stance by the BOZ at a time when inflation is 6.1% making real yields very positive at the current bond yields. Our analysts forecast secondary market trading as ZMW1billion in aggressive bids were not satisfied. There is ZM1billion out there looking for high yielding assets. Some players placed cheeky bids ( higher than usual) after having priced- in ‘100bps -150bps’ above the old primary curve following news around IMF dismissal of Zambia’s borrowing plans. We expect that this n group will be active in the secondary market.
However, with Average Lending Rate – ALR spread over the Monetary Policy Rate – MPR widening, the excess liquidity from the SRR easing