Six month treasury bill reprices 2% higher in poorly subscribed debt sale

If you are looking for investment option in government securities in the short term, yields on the 6month treasury bills just got attractive – overnight – in Thursday 10 May debt sale. Investing in 6m treasury bills will now pay you 13% (178bps higher than previously) as at yesterday. However this is currently the second best option on the Kwacha term structure of interest rates with the highest earnings yield you can get is 17.7% if you lock up your cash in 1 year money. The auction which occurs every fortnight was poorly subscribed with only ZMW291mn raised from an offer of ZMW950mn. This translates to roughly about 70% under-subscription a worrisome sign especially that the budget for 2018 requires that government funding comes from the domestic market. Suffice to say at this rate the state is behind in its capital raising to fun its projects.

The rationale behind this usage of the Kwacha market was to manage the cost – risk trade off of foreign versus local currency borrowing to achieve the 60:40 mix in the medium term. (60% being Kwacha and the 40% being foreign currency denominated debt). The treasury bill sale was nonetheless concentrated in the one year – as expected – accounting for 94% of the appetite, given the attractiveness of the yield of 17.7% other tenors collectively accounted for 6%. This is the second treasury bill auction of 2018 that is deeply under-subscribed.

Treasury bill curve showing the 6m primary market repricing in thursdays 10 May auction. Data extracted from Bank of Zambia website.

The Bank of Zambia commenced a road show on 09 May to sensitize citizens in provincial centers with the hope of tapping excess funds in the retail space which has for a long time absent from domestic debt market participation. The BOZ hopes to widen its net and maximize its debt sales as it assists the state achieve the 2018 budgetary commitment of funding fiscals with domestic debt as part of the medium term debt strategy – MTDS path the Ministry of Finance has undertaken to avert the current debt situation in Zambia.

“You are guaranteed your money back if you invest in government securities as governments will never collapse,” Deputy Governor Dr. Bwalya Ng’andu said as he graced opening of the road show in Lusaka.

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