T-bills undersubscribed first time in 3 months

Central Bank of Kenya. FILE PHOTO | NMG 

By ELIZABETH KIVUVA
More by this Author

Summary

• The weekly Treasury Bill auction at the Central Bank of Kenya (CBK) was last week undersubscribed for the first time in three months as liquidity in the market dropped following the recent aggressive mop up by the regulator.
• Investors bid Sh22.26 billion on the short-term government securities below the advertised Sh24 billion across all three tenors.
• CBK accepted bids worth Sh18.65 billion, and with maturities worth Sh30.9 billion, there was no new borrowing against T-bills during the week.

The weekly Treasury Bill auction at the Central Bank of Kenya (CBK) was last week undersubscribed for the first time in three months as liquidity in the market dropped following the recent aggressive mop up by the regulator.

Investors bid Sh22.26 billion on the short-term government securities below the advertised Sh24 billion across all three tenors.

CBK accepted bids worth Sh18.65 billion, and with maturities worth Sh30.9 billion, there was no new borrowing against T-bills during the week.

The auction saw a marginal increase in rates by one to seven basis points to 6.2 percent, 6.56 percent and 7.52 percent respectively on the 91-day. 182-day and 364-day papers.

The low subscription coincides with an ongoing sale of an 11-year infrastructure bond worth Sh70 billion, with the sale running until August 18.

This is Kenya’s biggest ever infrastructure bond issue. Analysts expect it to offer yields of between 10.95 and 11.5 percent, which they deem attractive to investors considering the fact that the bond is tax free.

The expectation was therefore that investors would be directing their capital to the bond, which meant that the T-bill sale would receive lower bids.

“We expect the issue to be oversubscribed due to the bond’s tax-free status, market liquidity levels and capital flight by risk averse investors from the underperforming equities market,” said analysts at Sterling Capital in their August fixed income note.

Last week’s auction of the T-bills also followed a tap sale of a Sh40 billion, 20-year Treasury bond that was first sold in 2018, that attracted bids worth Sh40.26 billion.

The two concurrent bond dales have therefore contributed to the lower uptake of T-bills in the past two auctions.

Inventors have been moving their cash towards the long-term debt securities over the positive returns on the bonds and dearth of viable alternative investment options given other assets like the stock market remain hard hit by the virus while they hold increased uncertainty for the near future.