Every month or quarter, the Bank of Zambia (BoZ) issues hundreds of millions of Kwacha in government securities. While anyone with a local bank account and a Central Securities Depository (CSD) profile can participate, how you submit your application determines how your yield is set.
When applying for a GRZ bond auction, you must choose between two distinct entry methods: Non-Competitive Bidding and Competitive Bidding. Understanding the mechanics of both pathways ensures you enter the market with the right strategy and realistic allocation expectations.
Non-Competitive vs. Competitive Bids: At a Glance
The core distinction lies in whether you are dictating your required interest rate or accepting the average market rate established by large institutional buyers.
| Feature | Non-Competitive Bidding | Competitive Bidding |
| Minimum Bid | ZMW 1,000 | ZMW 500,000 |
| Maximum Bid | ZMW 499,999 | Limited only by total tender size |
| Target Audience | Retail investors, SMEs, individuals | Commercial banks, pension funds, offshore entities |
| Yield Selection | You accept the final auction rate (“Price Taker”) | You specify your exact minimum required yield rate |
| Allocation Priority | High probability of 100% allotment | Risk of partial allocation or total rejection |
1. Non-Competitive Bidding (Retail)
If you are an individual investor or small business putting under half a million Kwacha into GRZ bonds, you will enter through the non-competitive window.
How It Works
As a non-competitive bidder, you do not write a requested interest rate on your application. Instead, you state the amount of money you want to invest (between ZMW 1,000 and ZMW 499,999). You agree in advance to accept whatever final interest rate is determined by the institutional competitive bidders.
Key Benefits
- Simplicity: You don’t need to analyze complex macroeconomic interest rate trajectories or guess where market yields are headed.
- Guaranteed Rate: You receive the exact same market-clearing rate achieved by multi-million-Kwacha institutional investors.
- High Allotment Security: The Bank of Zambia reserves a dedicated off-tender allocation window (typically 10% of the total auction size) specifically for non-competitive applications.
2. Competitive Bidding (Institutional)
If you are deploying ZMW 500,000 or more, you must enter as a competitive bidder.
How It Works
In competitive bidding, you submit two pieces of information:
- The face value amount you want to purchase.
- The exact yield rate (%) you are demanding in order to lend your money to the government.
If your requested rate is too high compared to what other institutions are asking, the Bank of Zambia will reject your bid, and your money will be returned.
How the Bank of Zambia Determines the Winning Rate
The Bank of Zambia uses a marginal pricing mechanism (often structured as a single-yield allotment) to determine auction results. Here is how the auction clears from start to finish:
1.Bids are Ranked by Yield:Step 1.
Once the bidding window closes, the Bank of Zambia gathers all competitive bids and ranks them in ascending order—from the lowest yield rate to the highest yield rate. Lower yield rates are prioritized because they represent cheaper borrowing costs for the state.
2.Sequential Allocation Until Tender is Full:Step 2.
The central bank allocates funds to the lowest bidder first, then the second lowest, moving down the list until the total amount allocated matches the tender budget for that tenor.
3.Setting the Cut-Off Yield:Step 3.
The highest accepted yield rate at the exact point where the tender budget is exhausted becomes the cut-off rate (or marginal yield). Bids submitted with requested rates above this cut-off are rejected.
4.Non-Competitive Settlement:Step 4.
All non-competitive bidders are then awarded their full bond allocations at this established cut-off rate.
Worked Example: Par Issuance Auction Mechanics
Since the Bank of Zambia issues bonds at par (meaning face value equals cost), the cut-off yield determined in the auction directly becomes the fixed coupon rate for that bond issue.
Hypothetical Scenario: BoZ wants to borrow ZMW 10 Million on a 7-Year Bond.
- Investor A bids ZMW 3M at 14.50% → Accepted
- Investor B bids ZMW 4M at 15.00% → Accepted
- Investor C bids ZMW 3M at 15.50% → Accepted (Cumulative total hits ZMW 10M)
- Investor D bids ZMW 2M at 16.00% → Rejected (Exceeds tender size)
The Outcome: The cut-off rate is 15.50%. Investors A, B, and C all receive their allocated bonds at 15.50%. Non-competitive retail bidders who applied for ZMW 10,000 also receive their bonds at 15.50%.
Practical Takeaways for First-Time Investors
- Stick to Non-Competitive Bidding: Unless you manage an institutional fund or have over K500,000 to invest, non-competitive bidding gives you the best balance of safety and market-competitive yields without the risk of bid rejection.
- Review Historical Results: Look at previous BoZ auction press releases on
boz.zmto see where recent cut-off yields settled for your preferred tenor before placing your bid. - Automate via the Investor Portal: Submitting through
investorportal.boz.zmallows you to select non-competitive entry seamlessly.
To gain a broader perspective on recent structural updates to benchmark tenors and auction frequencies in Zambia, watch this Government Bonds in Zambia Market Overview.
This video provides an expert breakdown of how auction frequency adjustments and benchmark bond reopening rules affect liquidity and secondary trading for Zambian retail investors.