JOHANNESBURG, July 20 (Reuters) - A Zambian Treasury bill auction next week is expected to be oversubscribed as a stable kwacha encourages offshore investors and locals to take part. In Nigeria, expectations that the central bank will hold interest rates next week are likely to push yields lower.
Zambian Treasury bill yields are likely to fall at an auction next week as excess liquidity and a stable kwacha draw in foreign as well as local investors.
The Bank of Zambia will offer 300 billion kwacha ($62 million) of 91-, 182-, 273- and 364-day Treasury bills on Thursday.
Traders expect the sale to be oversubscribed due to an excess of cash.
“We expect quite a bit of interest in the T-bills,” one trader said. “The money markets are very liquid.”
Demand was likely to come from both local and offshore investors, he added, as the kwacha shows signs of stabilising.
The kwacha, which rose by more than 10 percent against the dollar earlier this month as the market reacted to a new policy curbing the use of dollars, has traded around the 4,800 level this week.
“Initially, it might have been a bit of an overreaction,” he said. “Now we’re seeing these good buying levels. It’s not a bad level for offshores to be coming into the market.”
At last week’s auction, which was oversubscribed, yields ranged from 7.7 percent on the 91-day bill to 12.6 percent on the 364-day instrument.
Yields on Nigerian debt are seen edging lower next week as demand for Treasury bills remains strong and amid expectations the central bank will keep interest rates unchanged.
Its Monetary Policy Committee (MPC) is scheduled to announce its interest rate decision on Tuesday and analysts expect the committee to hold rates at 12 percent for the fifth time in a row.
Consumer inflation rose to 12.9 percent year-on-year in June, from 12.7 percent in May, supporting that view.
Traders said yields would also continue to trend downwards due to the government retiring existing debt without replacing it.
“The market continues to witness strong demand, especially for Treasury bills, because the central bank is not replacing maturing papers with new issues,” one dealer said.
Yields on 1-year paper have fallen sharply to around 13 percent from 15 percent two weeks ago.
Nigeria raised 75 billion naira ($464 million)in 5-, 7- and 10-year bonds this week with slightly higher yields compared with the previous auction last month.
The yield on the 5-year bond rose to 16.19 percent from 15.85 percent at last month’s auction, while that on the 7-year paper increased to 16.59 percent from 16 percent. The 10-year paper was issued at 16.30 percent from 16.21 percent previously.
The central bank said this week that it would sell 154.9 billion naira in Treasury bills on July 26.
Yields on Kenyan government securities are expected to keep rising at upcoming sales as demand for shorter-dated repurchase agreements remains high, but improved shilling liquidity is expected to improve subscription rates.
Next week, the central bank plans to sell 10 billion shillings ($119 million) of 5- and 10-year bonds. It will also hold a regular sale of 91- and 182-day Treasury bills worth 6 billion shillings.
Traders expect the bonds to attract the interest of fund managers but commercial banks are likely to prefer shorter-dated paper.
“Had they (the central bank) not been in the repo (market), and let liquidity pile up, then people would be dying to invest in those opportunities,” a senior treasury manager at one institution said.
“If they are doing 14 to 16 percent on the repos, and almost 13 percent on the 182-day, banks have options.”
Commercial banks have generally shifted their cash into Term Auction Deposits in the central bank’s repurchase agreements market, which have been offering higher returns.
Traders forecast the yield on the 5-year bond to rise to 13 or 14 percent, from 11.86 percent when it was last sold, while the 10-year paper is seen at 14-15 percent, compared to 12.71 percent previously. ($1 = 4,905 Zambian kwacha) ($1 = 84 Kenyan shillings) ($1 = 162 naira) (Reporting by Tosin Sulaiman, Oludare Mayowa, George Obulutsa and Beatrice Gachenge; Editing by Ed Cropley)