Zambia Lures Foreigners Back to Debt With Record T-Bill Yields

A rally in Zambia’s kwacha, the world’s second-best performing currency this month, and record high yields are attracting foreign investors back to the nation’s Treasury bills.

The Bank of Zambia sold 475 million kwacha ($76 million) of securities yesterday after getting 603 million kwacha in bids, the first time demand exceeded supply since Feb. 20, according to data compiled by Bloomberg. Yields on 364-day bills rose to 19.99 percent, the highest since Bloomberg began compiling data in 2005, with the sale luring mostly international investors, the Lusaka-based central bank said in an e-mailed statement.

Zambia’s kwacha gained 9.6 percent in June, the most in the world after Papa New Guinea’s kina, paring losses for 2014 to 12 percent. Zambia agreed to start talks with the IMF on a program to contain its budget deficit, which may include a loan, the government said a week ago. The central bank has raised interest rates to a record to support the currency and tame inflation, while boosting overnight rates and ordering reserves be set aside for accounts held abroad to clamp down on speculators.

“The central bank have talked down fears regarding the currency of late and also their expectations of the fiscal deficit,” Nema Ramkhelawan-Bhana, an Africa analyst at Rand Merchant Bank, said today by phone from Johannesburg. “That perhaps has shored up confidence.”

Positive Fundamentals

Zambia’s budget deficit swelled to 6.8 percent of gross domestic product last year compared with a 4.3 percent forecast as corn and fuel subsidies and civil-servant wage increases boosted spending. This year’s deficit will be 5.2 percent of GDP, down from a previous forecast of 6.6 percent, mainly because of a rebasing exercise that found the economy is about a quarter bigger than previously thought, Secretary to the Treasury Fredson Yamba said on June 6.

“All the economic fundamentals are still very positive, so it shows they still have confidence in the economy,” David Chewe, investments director at National Pension Scheme Authority, said by phone from Lusaka, referring to bids from foreign investors.

Yields on the benchmark 364-day Treasury bills have increased by 4.24 percentage points this year.

To contact the reporter on this story: Matthew Hill in Lusaka at [email protected]

To contact the editors responsible for this story: Antony Sguazzin at [email protected]Vernon Wessels, Emily Bowers