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By Brainwave R Mumba, Sr.

 

CEO & President – Zambian Chronicle

Chief Financial Consultant

 

Treasury Bills & Government Bonds

Treasury Bills and Government Bonds remain one of the most risk free investments for short to medium term capital gains. As government strives to fight inflation and as global economic recovery remains uncertain at least for the next 8 months, these financial instruments continue to be alternative attractive derivatives for smart investors.

 

:: Treasury Bills

 

Days

Low

High

Average

91

13.00%

13.89%

13.71%

182

15.75%

16.00%

15.98%

271

17.00%

17.00%

16.90%

364

17.94%

18.50%

18.47%

Date: 12 January, 2009  

:: Government Bonds

 

Period

Weighted Average

2 Years

16.57%

3 Years

16.03%

5 Years

18.98%

7 Years

17.20%

10 Years

18.20%

15 Years

19.25%

Date: 12 January, 2009  

 

To be more attractive to foreign investors, the Zambian Enterprise needs to complete necessary steps needed to achieve “First Credit Rating Status”. This would enable the country to issue international bonds and enter the elite class with incentives similar to those in developed nations.

 

Botswana & South Africa

Currently only Botswana and South Africa carry the first credit rating status and their markets carry a lion’s share. For instance, Africa’s combined GDP accounts for 2% of the world’s and approximately half of that is that of South Africa’s economy as a stand alone entity.

 

Zambia’s Share In SADC

Should we attain that “First Credit Rating Status”, the Zambian Enterprise would be the third country on the continent to issue such bonds and its economy would almost triple if not quadruple due to cash in-flows. The Zambian economy currently accounts for only 1 percent of Sub-Saharan Africa’s $544 billion economy.

 

The 1% is a sad state of financial affairs especially that intra-SADC trade is worth well over $1.3 trillion going by the last available data. With volumes that high, the Zambian Enterprise can share a bigger piece of the pie for the benefit of the smart people of its franchise.

 

Foreign Exchange Rates

The Kwacha continues to slip against major currencies and this makes result in putting pressure on BoZ to tighten fiscal policy. As Bank of Zambia tightens the money supply, it runs the risk of not being able to meet its balance of payment obligations in the current account.

 

:: Today’s Exchange Rates

 

Currency

We Buy

We Sell

US Dollar ($)

4,800

5,000

UK Pound (£)

7,317

7,622

SA Rand (R)

496

517

Euro (€)

6,656

6,839

 

The solution to the above lies in increased productivity. Government needs to find ways to spur the economy in the right direction by encouraging activities that reduce unemployment, stabilize tax revenues while increasing consumer spending through increased wages.

 

US Treasuries Continue Losing Yields

Meanwhile treasury prices in the United States were little changed Tuesday after Federal Reserve Chairman Ben Bernanke said more government action would be needed to strengthen the financial system.

 

Yields on two-year notes, which move inversely to prices, (UST2YR) fell 2 basis points to 0.73%. A basis point is one one-hundredth of a percent. Ten-year note yields (UST10Y) were little changed at 2.30%.

 

Treasury recovered from earlier losses as U.S. equities declined and oil prices retreated. The timing and strength of any global recovery remain “highly uncertain,” Bernanke said in a speech in London.

 

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