INVESTORS this week kept the money market active, ignoring a slump in rates as they scurried for 91-day paper to avoid locking their funds in long-dated paper expected to come back onto the market next week.
Interest on 91-day treasury bill (TB) ins
truments has plunged to 350%, from 525%, but analysts said there was intense bidding for the money market instruments as investors sought to quickly store their funds in the short-term papers and avoid long-dated ones expected next week.
“Market expectations are that the Reserve Bank will resort to long paper to mop up excess liquidity,” said Washington Mehlomakulu, an analyst with Highveld Financial Services.
The market is expected to be awash with cash from maturities amounting to $13 trillion next week. There were strong fears the central bank would use long-dated paper to mop up liquidity, forcing investors to seek accommodation for their funds in 91-day bills.
On Monday, the RBZ allocated $1,4 trillion from its 91-day TB tenders, with bids amounting to $2,7 trillion and $1,8 trillion being accepted on Tuesday and Wednesday’s auctions.
There were TB maturities amounting to $4 trillion on Tuesday.
Market analysts said huge interest in the 91-day TBs had kept the market squarish.
There had been shortages of $584 billion on Wednesday, with the market expected to have been down $22 billion yesterday.
“The market had been short owing to the take-up of the TBs,” a dealer said yesterday. “There was acceptance of the interest rates offered on the paper which is why bulls were absent from the stock market this week.”
The stock market last week rebounded after the RBZ announced that it would start issuing long-dated paper of between one and three years at interest rates matched with inflation levels plus a premium.
Mehlomakulu said there was little expectation the RBZ would raise its accommodation rates, which had been used largely to dampen inflationary pressure.
“The problem is that inflation is self-perpetuating,” said Mehlomakulu.
“High interest rates would maintain inflationary pressure. The interest rate instrument will only be effective if borrowings are spurring inflation.”
Last week, the stock market, which had been suppressed by high interest rates on the money market, staged a dramatic comeback after a policy decision in favour of long-dated paper.
However, support for the 91-day paper, which the RBZ had abandoned in favour of long paper, resulted in investors flocking back to the money market, creating bearish sentiment on the equities market.