T-bill bids fall to 9-month low as liquidity tightens

National Treasury head office in Nairobi. FILE PHOTO | NMG

By ELIZABETH KIVUVA
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Summary

• The Central Bank of Kenya (CBK) said it received bids worth Sh7.1 billion against the target of Sh24 billion for the three tenors cumulatively in last week’s sale.
• The CBK took up Sh6.7 billion, which when matched against maturities of Sh16.9 billion meant that the government made net repayments of Sh10.2 billion on the short term securities.
• The tightening liquidity has been evident through the increase in the interbank rate to 3.34 percent last week from 2.3 percent the previous Friday.

Subscription levels for the weekly Treasury bill auction fell to their lowest level this year, signalling that liquidity is drying up in the market.

The Central Bank of Kenya (CBK) said it received bids worth Sh7.1 billion against the target of Sh24 billion for the three tenors cumulatively in last week’s sale, being the lowest amount since December 30, 2019 when investors offered bids worth Sh4.1 billion.

The CBK took up Sh6.7 billion, which when matched against maturities of Sh16.9 billion meant that the government made net repayments of Sh10.2 billion on the short term securities.

The tightening liquidity has been evident through the increase in the interbank rate to 3.34 percent last week from 2.3 percent the previous Friday.

The gradual pick in economic activity has also increased cash withdrawals from banks, thus reducing the excess amounts they held previously that they would park in short-term securities.

The Treasury bill subscription levels have been falling over the last two months, which also signals increased preference by investors for the longer tenured bonds alternatives, which carry a significant premium in yields over the T-bills, even accounting for the duration difference.

The falling demand is, however, starting to push the T-bill yields higher—albeit marginally. In last week’s auction, the rates for the 91, 182 and 364-day papers increased by 3.6, 5.3 and 11.9 basis points respectively to 6.31, 6.77 and 7.69 percent.

The bonds sold in the current fiscal year in the meantime have been offering between between 10.3 and 12.93 percent, with durations to maturity ranging from 4.9 to 18 years.

The government is also under less pressure to borrow through the short-term securities due to the good performance of bond sales, which have raised Sh264 billion in the current fiscal year.

This is also in line with the current efforts to lengthen the maturity profile of domestic debt by pivoting towards longer term bonds.