The Central Bank of Kenya head office: The 364-day paper got most attention with Sh52.2 billion bids. FILE PHOTO | NMG
Treasuries investors overwhelmingly bid for the one-year
instrument in last week’s auction as they sought to pack some of the
high liquidity in short-term debt despite returns on the paper sliding
to a six-year low.
The investors offered a total of
Sh59.8 billion in the three T-bill tenors against a cumulative borrowing
target of Sh24 billion, with the Central Bank of Kenya (CBK) taking up
Sh31.1 billion.
Much of the attention was on the one-year paper that attracted bids worth Sh52.2 billion (Sh23.4 billion accepted).
In
opting for the one-year paper at the expense of the three and six-month
offers, investors were chasing the slightly higher yields in a market
where rates generally slid.
In last week’s auction, the
rates on the 91-day, 182-day and 364-day T-bills fell to a six-year low
of 6.73 percent, 7.48 percent and 8.75 percent respectively.
Investors normally turn to short-term government debt when there
is uncertainty over the direction of interest rates, looking to avoid
long-term bonds so that they are more agile in terms of liquidity if
rates were to go up.
The present uncertainty draws from
the possibility of a repeal of the rate cap law, which if successful
would likely edge Treasury yields up in tandem with the expected rise in
bank customer loan rates.
In the past week, the rising
liquidity in the market as a result of government payments and maturing
domestic debt has also manifested in a weaker shilling in foreign
exchange market.
On Friday, the shilling was exchanging
at an average of 102.32 units to the dollar in the interbank market,
compared to Thursday’s closing average of 102.29 units.
Its
performance last week was also affected by end-month dollar demand from
importers, especially those in the manufacturing and energy sectors who
needed to settle overseas payment obligations.
Treasury’s
reduced appetite for borrowing in the domestic market as the fiscal
year drew to a close was also helping to keep the market liquid.
The
government in May was able to access Sh210 billion in a Eurobond offer
that went a long way towards closing the financing deficit in the
2018/19 budget.
It also reached an agreement with the Word Bank for a Sh75 billion budgetary support loan.
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