Zambia’s post election bond-bump trade rallies yields 600bps across
For a fortnight now Africa’s red metal hotspot Zambia is making positive headline following the August 12 poll outcome that saw a third successful peaceful transition since 1991. With the election of President Hakainde Hichilema as 7th President, markets roared with confidence that saw the Kwacha named worlds best currency with a 17.8% appreciation, a 12% dollar bond rally in prices and on August 28, a 600 basis point rally on average across the bond curve.
Wall Street investment bank JPMorgan had tipped offshore players on attractiveness of Kwacha paper after what it dubbed subsiding political risks after the election of former opposition party leader Hakainde Hichilema.
With bids totalling K12.5 billion ($757 million) as offshores flooded the Zambian market, the central bank absorbed K2.5 billion ($151.5 million) of appetite, with strong interest in the 5 and 10 year tenors. Yields compressed 600bps on average with the 5 year rallying 799bps, while the 10 years eased 401bps respectively. (See table above on tenor performance).
TERM FUNDING FORECAST TO EASE AS BOND YIELDS COMPRESS
With the bond curve climbing down 600bps on average, term funding is forecast to reprice for for new credit. The post election bond bump political risk trade has allowed for traders to book mark to market margins. The current state of the global environment continues to provide a trade opportunity window as more offshore players gold rush yields given the unattractiveness of global treasuries with ultra thin yields and elevated inflation. The window is however expected to narrow as the US Fed commences its tapering programs.
The currency has continued to take a cue on improved sentiment with Zambia’s newly sworn Finance Minister Dr. Situmbeko Musokotwane, cautioning speculative holders of dollars from hoarding. What Zambia has experienced over the last two weeks is sentiment driven well ahead of execution of the new regimes policy actions.
With record high copper prices and the currency on a winning streak, Zambia is well poised for an ease on its dollar denominated obligations.
