Confidence in Zambia’s economy plummets as kwacha bond sale flops -Sinkamba
By Staff Reporter
Opposition Green Party president Peter Sinkamba says the Bank of Zambia Kwacha bond sale for last week Friday, December 14 ‘flopped’ as players shy away reserve liquidity for Treasury bills.
In a statement to NewsDayZambia.com Sinkamba said Of the K1.65 billion on offer in the 14 December bond sale, Central Bank in Africa’s second largest copper producer only sold K245 million. This translated to a 14.8% subscription rate, the poorest outcome for the year seen. The dismal performance was attributed to not only low liquidity but player’s shied away reserving their funds for 1 year treasury bills in the last auction of the year to be held on 20 December.
“The current term structure of kwacha interest rates reflects a descending trajectory with the short end (T-bills) yielding higher than the long end (bonds). This has made treasury bills a more attractive investment option than government bonds,” said Sinkamba
He said bids totaled K315 millions of which the entire appetite was absorbed, demand for 3 and 5 year paper (paying 20% and 20.4% respectively) accounted for 84% of the auction with the residual 16% in the 10 year bonds paying 19.5% with curve pricing was unchanged from the last primaries.
“Secondary market trading for price discovery reveals that Kwacha fixed income assets are overvalued at spreads 400-600 bps above the current bond yields. Analysts are convinced the current term structure of Kwacha interest rates is not reflective of the sovereign and liquidity risk of Zambia,” he said
Sinkamba added that last Friday’s dismal performance in the fixed income sale widens the perceived fiscal funding gap by K1.4 billion.
“An aggregation of the annual government debt sales performance ‘primae facie’ suggests a fiscal revenue gap of K11.68 billion. As we the Greens have always said, the only way out is thinking outside the box. Legalize it. Grow the economy. Heal the nation. End poverty,” he said.
