Three-month Treasury bill hits 20pc as buyers seek premium returns

Money Markets

The Central Bank of Kenya headquarters in Nairobi. PHOTO | FILE  

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• The three-month paper will give an average return of 20.6 per cent up from 18.6 per cent accepted in the previous auction.

The benchmark 91-day Treasury bill hit the psychological threshold of 20 per cent rate as investors continued demanding a high premium on lending to the government in a tight market.

The three-month paper will give an average return of 20.6 per cent up from 18.6 per cent accepted in the previous auction. Investors offered the National Treasury more than double the cash it was targeting underlining the attractiveness of the returns.

“The total number of bids received was 428 amounting to Sh8.6 billion, representing a subscription of 217 per cent,” said the Central Bank of Kenya (CBK) in a statement.

The CBK accepted bids worth Sh7.6 billion. In the previous week there were 214 bids worth Sh5.1 billion.

The increased investor participation is said to be one of the factors supporting the strengthening of the shilling owing to higher dollar inflows.

READ MORE: Shilling gains on attractive Treasury yield

The rates on the T-bills are an important reference point for fixed deposits and 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 the Treasury bill rate, whereby their yield goes up or down in tandem with the T-bill rate.

Meanwhile, Imperial Bank’s five-year bond, which was issued last month at a return of 15 per cent, was marginally oversubscribed indicating the high cost of cash following a rise in interest rates.

The bond which achieved a 101-per cent subscription, was offered before when the T-bill rates were slightly below 15 per cent.

Imperial was raising Sh2 billion for expansion in the local and regional market.

Family Bank has received an approval to issue a Sh10 billion bond but is yet to release the time line for the issue.

Corporate depositors usually demand banks to at minimum match the government return for them to keep their cash with the banks.

The Treasury has, however, indicated that it would start looking beyond the local market for cash in order to avoid the high interest rate environment.