Commercial banks and money managers shied away from the Zambian treasury bill market in an auction that was poorly subscribed at 16.8%. The Bank of Zambia was able to satisfy the anemic demand of K188million of the K950million on offer which against the odds (despite cash long market position of just under K1.6billion) was skewed to the 273 day tenor which paid a return of 17.5% (representing a 450bps rise in yields from 13% a fortnight ago). (Cash market position is measured by aggregate interbank current account balance).
All other points on the Kwacha a curve were unchanged with the most attractive duration being the 1 year paying 18.5% which accounted for 37% of the total appetite in bids. The copper producers local currency debt market currently grapples with dampened sentiment following debt concerns that has fueled an asset sell off by international holders of the Kwacha assets. Barely a week ago Fitch and Moody’s rating agencies downgraded the Southern African nations long term issuer ratings to B3 (stable outlook) and Caa1 (negative outlook) citing debt concerns whose risks are poised to impact growth adversely.
Low trading intent vs hold on approach
One school of thought could view this behavior as one that expects yields to trend bearishly as such for ‘trading intent’ there are zero mark to market opportunities. Traders only buy assets when yields are high in anticipation of a rally (falling) for trading income purposes. Another school of thought could be that most players have a ‘hold on’ approach to locking liquidity in anticipation of what direction the fiscals will take amidst negative sentiment. As it stands, Kwacha longer dated assets (bonds) are more attractive with returns exceeding 18.5%. The few buyers of assets could be investing just for interest income otherwise short term Kwacha assets are just not attractive anymore in the current environment.
More articles on Kwacha cash markets.