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Here is the impact on cash flows, for 2-y to 5-y bonds, calculated using the last bond auction results. Note, 1. how duration shortens across each tenor, 2. how the net present value of the cash flow changes at cash flow dates is negligible (in fact, if it weren't for rounding off errors, the net present value is zero), and 3. how, based on the last auction yields, the reinvestment benefit (in % terms) is significantly skewed towards the shorter end of the bond curve (3-y bond in particular). #zambia #kwacha #zmw #boz #mof #mofnp #bonds #coupons #yields #investments #taxpayments #witholdingtax #handlingfees #capitalgains

USD/ZMW currently trading at 23.310/23.360. 1. Important to note that the offshore spot market did trade just under 24.50 yesterday. There's been considerable upside pressure in that space with widening price divergence between the onshore and offshore spot markets. 2. Updated USD/ZMW key technical levels to watch should we see a pullback - To alter/shift short-term USD bullishness, USD/ZMW will need to breach 19.855 on a pullback. - To alter/shift long-term USD bullishness, USD/ZMW will need to breach 17.940 on a pullback. - Present best case scenario on a pullback is around 18.475. Please note that this does not mean that this level cannot be breached. Rather it is just a mathematical calculation for most likely best case outcome on a pullback. 3. Will we see a pullback? - The 250bps hike will take out approximately ZMW 1.9 billion vs. current liquidity at ZMW 2.2 billion (excluding liquidity currently with BOZ through recent OMO facilities) - There are lots of ifs and buts following the recent 250bps hike (overall 550bps over last 3 weeks). The key ones are a) % of security rollovers (new bids/maturities) over the next few weeks, starting with the bond auction this week and the T-bill auction next week. To year-end, there are ZMW 10.5 billion in security maturities and coupon payments vs. 5 auctions (3 T-bill and 2 Bond) left to raise at least ZMW 11.2 billion. b) Crucially, to end November 2023, there are only ZMW 3.0 billion in security maturities and coupon payments vs. ZMW 4.6 billion that GRZ is looking to raise in the 2 auctions left over the next 2 weeks. If we see high rollover rate then liquidity could tighten quite aggressively over the next 2 weeks, before easing again (quite significantly I might add) in December 2023. Key point to consider here is whether we see banks/financial institutions bidding for securities in this environment vs. whether we see banks/financial institutions hold on to security maturities and coupon receipts as liquidity buffer for potential future tightening. c) Amount of BOZ FX sales over the next few weeks, should they indeed intervene through this channel. Critically, there is an FX reserve boost coming here with the recent USD 184m IMF SLA, so there is better ammunition. d) BOZ activity wrt OMOs, i.e. OMO mopping amounts vs OMO maturity profile over next month (basically BOZ's OMO success rate) e) Coordination between BOZ and MoFNP/GRZ to manage liquidity influxes from government expenditures and VAT refunds. 4. Conclusion - It is a step in the right direction given the challenges with FX which will likely manifest in higher inflation over the next 3 months. - Success of the measure is dependent on a number of scenarios (given above). 5. There's still a decision/statement to be provided by the BOZ later this morning. - Key thing is that BOZ will likely remain hawkish. - Median consensus is for a 100bps hike in the Basis Policy rate (BPR) - Our view is on the upper bound of that range with expectation for a hike of 250bps in the BPR. #zambia #kwacha #zmw #reserveratio #srr #crr #monetarypolicy #inflation #fx #fxreserves #usd #dxy #boz #mof #mofnp