Zambian borrowing costs likely to stabilise


Tight liquidity in Kenya is likely to dampen demand for Treasury bills at an auction next week and little change is expected in yields. In Zambia, borrowing costs should stabilise after rising for most of the year.




Treasury bill yields are expected to remain flat at next week’s auctions as tight liquidity curbs investor appetite. The central bank is scheduled to sell 91-, 182, and 364-day Treasury bills worth a total of 7 billion shillings ($81.11 million) on Wednesday and Thursday.


The weighted average interest rate on the 91-day Treasury bills inched down to 9.816 percent at this week’s sale from 9.979 percent the previous week. That on the six-month bills edged down to 10.515 percent from 10.603 percent.


The yield on the 364-day Treasury bills also dropped to 10.939 percent from 10.988 percent.


“I don’t see much movement going forward. Liquidity is still tight in the money markets,” said Alex Muiruri, a fixed income trader at African Alliance Investment Bank.


The weighted average interest rate on the overnight interbank market rose to 10.0391 percent on Thursday from 9.875 percent the previous day, pointing to a liquidity squeeze in the money markets.




Yields are expected to stabilise in the next few weeks after increasing steadily throughout the year amid a rise in government borrowing.


The Bank of Zambia will hold its fortnightly Treasury bill auction on Nov. 28. It has not yet published the amount it intends to raise. At the last Treasury bill auction, yields rose on all tenors except the 91-day paper.


“For most of this year yields have been rising,” said one trader. “We expect to see a slowdown as the auctions progress towards the end of this year.


As we begin next year we should start to see (yields) coming off.” Yields were higher at a quarterly bond auction on Friday in which the central bank received bids worth 799 million kwacha ($145.80 million), less than the 920 million kwacha it sought to raise.


Traders had expected high demand given the last bond auction was in August, but only the 3- and 7-year bonds were oversubscribed.


The yield on the 2-year paper rose to 14 percent from 13.5 percent at the last sale that on the 3-year issue edged up 25 basis points to 15.5 percent while the 7-year bond yielded 16.85 percent, from 15.5 percent previously. Rates on the 5-, 10- and 15-year bonds also climbed.