ZAMBIA’S bond market has in the last eight weeks witnessed a yield curve which has seen the six, nine and 12 months tenors scaling higher in three respective debt sales .

This  is after the first bond auction of the year repriced higher confirming interest rate bears.

Last week, the market got a fret in their outlook as the debut bond sale printed yields a few basis points higher. 

The Bank of Zambia was only able to satisfy K1.9 billion of the K2.9 billion appetite in bids pushing the three, seven and 10 year points on the demand curve 100, 150 and 140 basis points higher to 20.5 percent, 24.5 percent and 25.5 percent, respectively.

According to the Kwacha Arbitrageur magazine, Friday January 21 outcome, strengthened the case for yield rate bears whose signs were earlier detected on the treasury bill end of the Kwacha curve. 

“In the last 8 weeks, the yield curve has seen the 6, 9 and 12 months tenors scare higher in three respective debt sales while the first bond auction of the year repriced higher confirming interest rate bears,” it stated.

The magazine stated that with the central bank’s increased appetite for both bond and Treasury bill auctions to fund the 2022 fiscal budget, it was expected that yields would be pressured upwards. 

“The earlier support from the effects of the state of the global economic marred by a Covid-19 pandemic pointing liquidity to emerging and frontier market assets, Kwacha inclusive, offshore players are caught in the labyrinth of uncertainty around a clear United States  Fed stance on potential hikes this year. 

“As such could be holding liquidity to lock in US treasuries should the rate hiking cycle start. The muted secondary market activity seems to suggest a liquidity constraint or that offshores have exhausted appetite in EM assets explaining the undersubscription seen in Friday’s sale,” the magazine indicated.

As for indigenous players, the Magazine stated, inflation and widening yields made the assets attractive as premiums were widening offering a decent compensation for taking sovereign risk.

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