Investors oversubscribe T-bills after weeks of cold reception

Central Bank of Kenya (CBK). FILE PHOTO | NMG

By ELIZABETH KIVUVA
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Summary

• The weekly Treasury bills auction was oversubscribed for the first time in nine weeks in last weeks sale, benefiting from rising liquidity in the money market.
• Investors bid Sh26.4 billion in last week’s auction, against a target of Sh24 billion, indicating the improving demand and liquidity in the market. The government took Sh24.79 billion.

The weekly Treasury bills auction was oversubscribed for the first time in nine weeks in last weeks sale, benefiting from rising liquidity in the money market.

Investors bid Sh26.4 billion in last week’s auction, against a target of Sh24 billion, indicating the improving demand and liquidity in the market. The government took Sh24.79 billion.

The previous eight auctions had all been undersubscribed, partly due to tightening liquidity and also due to investor preference for longer term bonds which were offering markedly higher yields, even accounting for duration difference.

Central Bank of Kenya (CBK) data show the interest rates on the 91-day, 182 and 364-day papers increased by between 1.4 and 6.8 basis points to 6.47 percent, 6.85 percent and 7.76 percent respectively.

The higher demand for the short term securities came as government payments to its departments, agencies and contractors helped increase the flow of cash in the economy.

These funds eventually find a home in the banking system and are ultimately parked in the government securities which are able to generate risk free returns with minimal effort needed to sell the assets.

The interbank rate, which is a good indicator of liquidity levels in the banking sector, dropped to 2.08 percent on Thursday from 3.7 percent at the beginning of October.

The volume of cash flowing through the economy is likely to go up even further now that President Uhuru Kenyatta signed the 2020/2021 County Revenue Allocation Bill into law last week, which has paved the way for the National Treasury to release billions of shillings to counties.

These funds had been held up by the dispute in the Senate over the formula to be used in allocating county funds in the next five years.

Once disbursed by the Treasury in coming days, part of this money will go towards payments of pending bills to contractors and suppliers, normally done through the banking system.

Analysts expect that the improved liquidity in the market will also help generate heavier bids for October’s reopened Sh50 billion, 20-year and 25-year Treasury bonds whose sale closed tomorrow.