Investor accounts for Treasury bonds purchase up 32pc

Central Bank of Kenya headquarters in Nairobi. Banks are the biggest holders of government debt at Sh499.8bn or 54.26 per cent. File 

By John Gachiri

Posted  Thursday, February 7  2013 at  21:02

In Summary

• The Central Depository System (CDS) accounts rose to 15,168 in January from 11,475 a year earlier, representing a 32 per cent increase.
• The increase was mainly driven by high interest rates at the beginning of last year which made it attractive for investors to participate in the fixed income market.

The number of electronic accounts for buying Treasury bonds rose by a third last year as investors cashed in on high interest rates offered by government papers, data released by the Central Bank of Kenya (CBK) shows.

The Central Depository System (CDS) accounts rose to 15,168 in January from 11,475 a year earlier, representing a 32 per cent increase.

Investors have to open a CDS account with the CBK to trade in Treasury bills and bonds.

Fixed income dealers said that the increase was mainly driven by high interest rates at the beginning of last year which made it attractive for investors to participate in the fixed income market.

“Rates went up sharply and a lot of investors went into fixed income,” said Peter Mwirigi, a fixed income trader at Sterling Capital. A 91-day Treasury bill sold at the end of January 2012 had an average interest yield of 20.577 per cent, but a similar bill sold at the end of last month was paying an 8.07 per cent return.

Returns on the government papers came down gradually during the year in tandem with CBK rate cuts, which was last month cut to 9.5 per cent from 18 per cent at the beginning of 2012.

Mr Mwirigi said he expects more retail investors, especially those focusing on short-term gains, to continue buying Treasury bills.

“Individual investors have become more sophisticated realising that while deposits in banks earn between four and five per cent, they would rather do Treasury bills where they can get between nine and 12 per cent,” said Mr Eric Musau, a research analyst at Standard Investment Bank.

He said that individual investors shifted to Treasury bills and bonds which were offering more competitive returns than bank deposits.

(Read: Treasury bond auction attracts Sh32bn)

“There was high interest from individuals who were attracted to rates that were as high as 20 per cent (in government debt), compared to banks which were offering much lower rates,” said Mr Musau.

Individual investors had Sh20.271 billion invested in Treasury bills and bonds, representing about 2.20 per cent of the government’s Sh950 billion domestic debt stock.

Bond dealers also said CBK’s decision to lower the entry level for investors to Sh50,000 from Sh100,000 made it easier for retail investors to participate in the fixed income market.

Banks are the biggest holders of government debt at Sh499.8bn or 54.26 per cent, pension funds and trusts hold Sh258.4bn (28.05 per cent), and insurance firms Sh99.12bn (10.16 per cent).

jgachiri@ke.nationmedia.com