Monday, August 31, 2015

Investors demand higher interest for Treasury bills

Money Markets
The Central Bank of Kenya headquarters in Nairobi. PHOTO | FILE  The Central Bank of Kenya headquarters in Nairobi. PHOTO | FILE
By CHARLES MWANIKI
In Summary
  • The rates on Treasury bills are now at their highest levels since April 2012.
  • Analysts have said the investors are looking to the short-term paper, with interest rates likely to go higher should the prevailing macroeconomic conditions prevail.

Investors are demanding higher interest rates for the six-month and one-year government Treasury bills as the market continues with its risk-averse approach to longer-dated fixed-income investment over uncertainties in the interest rate environment.
Auction results from last week’s Treasury bill offers show investors demanded close to 15 per cent for the one-year paper and nearly 14 per cent on the six month offers, while on the short term 91-day Treasuries the investors settled for 11.56 per cent.
The rates on Treasury bills are now at their highest levels since April 2012. Analysts have said the investors are looking to the short-term paper, with interest rates likely to go higher should the prevailing macroeconomic conditions prevail.
“In the bidding pattern witnessed over the last three months, investors have been demanding significant premiums… we continue to maintain our recommendation that investors should be biased towards short-term fixed income instruments due to uncertainty of rates in the current environment,” said financial advisory firm Cytonn Investments.
Last week the Central Bank of Kenya offered Sh4 billion each for the 182 and 364-day Treasury bills. It received 63 bids amounting to Sh1.24 billion for the 182-day paper at a rate of 13.8 per cent and 59 bids amounting to Sh1.89 billion for the 364-day paper at a rate of 14.49 per cent.
An oversubscription
CBK however only accepted bids worth Sh760 million for the 182-day and Sh1.46 billion for the 364- day bills at weighted average rates of 12.36 per cent and 13.82 per cent respectively.
These rates represented an increase of 0.1 and 0.7 per cent on the previous week’s yields.
The 91-day paper on the other hand attracted an oversubscription of 7.4 per cent on the Sh3 billion offered, with 160 bids coming in or a total of Sh3.22 billion. The interest rate on the accepted bids, at 11.52 per cent matched the market weighted average rate of the offers by investors.
In the secondary market, the same kind of caution has seen turnover remain subdued for the past four months, with trading also affected by tight liquidity in the money markets.
Monthly bond turnover declined to a new multi-year low of Sh12 billion in July, although the market has recorded some recovery this month with month-to-date turnover standing at Sh17 billion by last Thursday.
“Investors are displaying a cautious trading attitude resulting in a mismatch between demand and supply,” said Genghis Capital in a market report on Friday.
According to Alexander Forbes Financial Services (EA) head of operations and administration Shera Noorbhai, as short term treasury yields increase and the yield curve shifts upwards, Treasury bond values are likely to fall. 
“This is good news when you are investing new money as one is able to lock in high yields. However, for money already invested in this segment, the value of the treasury bonds falls resulting in unrealised losses,” she said.
cmwaniki@ke.nationmedia.com

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