By BUUMBA CHIMBULU
THE quantum of bids for bonds and treasury bills will remain competitive and aggressive given the Government’s decision to limit its borrowing to the tender size.
Government has continued to limit its borrowing through securities by ensuring that it only allocates bids to the tender size of K1.5 billion.
The recent group of investors were those with greater risk appetite seeking higher yields in securities with significant upside potential.
This is according to a paper dubbed: ‘Zambia in another successful bond auction: a confirmation of a change in sentiments’ conducted by Zanaco Bank.
According to the paper, Zambia was expected to start experiencing new demand from relatively risk averse offshore investors.
“We base the foregoing on a firm belief that the intersection IMF programme and a significant improvement in the macroeconomic environment will materially moderate the sovereign risk and hence attract relatively more risk averse investors who play a long term investment strategy and therefore target calm markets,” it stated.
The paper indicated that the rush for Government securities will slowdown in the near term as yield seeking offshore investors fulfil their demand tickets.
However, it stated this would be temporary because in the medium term (beginning in first half of 2022), long term investors were likely to come back to the Zambian market to keep demand elevated.
“In our view, we strongly believe there is value remaining in Zambian local currency treasury notes as we see them undervalued even after a significant downward shift in the yield curve.
“Going forward, our forecasts indicate yield rates are likely to come down again by 300-400 basis points before the close of 2021 before stabilising at the then established levels. If yield rates are to climb down further beyond this year, they will most likely be driven by favourable inflation dynamics,” the paper stated.
The report also indicated that that the strong interest in Zambia’s local currency notes, especially among offshore investors, was due to their undervaluation when compared to peers in Tanzania and Mozambique.
For example, the weighted average yield on Tanzanian local currency bonds stood at 5.58 percent in June 2021, significantly lower than that on Zambian bonds for the comparable number stood at 31.6 percent.
“Clearly, this suggests there exist an inherent and significant price appreciation potential in Zambian Treasury notes. Already, yields have been declining causing significant capital gains for ‘early bird’ investors.
“For offshore investors, the bullish Kwacha exchange rate outlook provides significant gains as they expect to get more money in dollar terms at the point of position exit,” it stated.
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