Money Markets
The Central Bank of Kenya. The Treasury aims to borrow Sh229 billion from the domestic market this fiscal year. PHOTO | FILE
By CHARLES MWANIKI
In Summary
- The benchmark 91-day bill jumped an astonishing 4.121 percentage points to 18.607 per cent in Thursday’s auction.
- Investors are currently concentrating on short-term paper due to the current uncertainty in the interest rates regime.
Interest rates on the 182 and 364-day Treasury bills
last week rose for the sixth consecutive week as investors continued to
demand a high premium on lending to the government in a tight market.
The rates on Treasury bills are now at their highest levels
since April 2012 when the market was coming off the shilling’s heavy
slide that saw it hit a low of 107 to the dollar in the fourth quarter
of 2011.
The benchmark 91-day bill, in the meanwhile, jumped
an astonishing 4.121 percentage points to 18.607 per cent in Thursday’s
auction.
Investors are currently concentrating on short-term paper due to the current uncertainty in the interest rates regime.
The Central Bank of Kenya was in the market for a
total of Sh8 billion through the 182 and 364-day offers last week, but
got only a fraction in bids due to the tight liquidity in the market.
“The total number of bids received was 45,
amounting to Sh210 million representing 5.31 per cent subscription
and 87 bids amounting to Sh470 million representing 11.81 per cent
subscription for 182 and 364 days, respectively,” said CBK in a
statement.
“Bids accepted amounted to Sh210 million for 182
days and Sh400 million for 364 days Treasury bills. The weighted average
rate of accepted bids, which will be applied for non-competitive bids,
was 14.55 per cent for the 182-day and 16.3 per cent for 364-day
Treasury bills.”
Analysts said the ongoing sale of the one-year Sh30
billion Treasury bond is also a factor in cutting demand for the
Treasury bills. This is mainly because of its market-determined coupon
rate, which analysts say is likely to see offers well above 15 per cent
accepted.
“The offer of the one-year bond will push the yield
on the 364-day paper upwards… the re-opening of the one-year will cater
for those seeking to invest in the short segment of the market,” said
Genghis Capital fixed income analyst Vinita Kotedia in a market note.
The rates on the T-Bills are an important reference
point for issuers of corporate bonds, who usually add a margin of a
number of percentage points when establishing the rate to pay creditors.
Floating rate corporate bonds are also tied to a
Treasury bill rate, whereby their yield goes up or down in tandem with
the T-bill rate.
According to Cytonn Investments, the increase in
yields across all tenors of Treasury is also an indication that the
government is keen to step up its domestic borrowing programme to bridge
the fiscal budget deficit.
The Treasury aims to borrow Sh229 billion from the
domestic market this fiscal year. According to CBK data, the government
domestic debt stands at Sh1.393 trillion, which represents a reduction
of Sh25 billion from the Sh1.418 trillion at the beginning of the fiscal
year in July.
The fall in debt is mainly due to redemptions of
treasuries outstripping new borrowing, where total government securities
in issue stand at Sh1.319 trillion compared to Sh1.354 trillion in
July. But the difference could be bridged from next month.
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