T-bill yield climbs to three-year high

T-bill yield climbs to three-year high

ABDUEL ELINAZA

THE yield for the 364-day Treasury bill has climbed to three years high reflecting the strength of the economy amid low inflationary pressure.

The 364-day yield went up by 5 basis points to reach 7.20 per cent while the last time was in the autumn of 2019 when the range was around 7.0 per cent.

Zan Securities Chief Executive Officer Raphael Masumbuko said yesterday that the average yields to maturity continue to edge higher, emulating the central bank’s monetary tightening cycle in a bid to curb inflationary risks.

“The recent Treasury bill auction highlights the central bank’s efforts to maintain a stable economy, with the increase in yields reflecting the strength of the economy.

“This will lead to a steepening of the yield curve, which should be viewed positively, as it signals growth and investment opportunities,” Mr Masumbuko said.

The 364-maturity, auctioned last Wednesday, gained 5 basis points to reach a 3-year high of 7.2 per cent from 7.15 per cent.

Last week the central bank offered 9.9bn/- for the 35-day maturity T-bill while 19.9bn/- was offered for the 91-day bill, further offering 69.9bn/- and 77.22bn/- for 182-day and 364-day maturities respectively.

The 35-day bill received 9.0bn/- bids, marking a 90.9 per cent subscription rate. The 91-day bill and 182-day bills received bids totalling 1.7bn/- and 50bn/- respectively. The 364-day bill received bids totalling 316.53bn/-, the highest in recent months.

Additionally, the 91-day gained 35 basis points to 4.0 per cent from 3.65 per cent. The 182-day bill gained 63 basis points from 4.6 per cent to 5.23 per cent.

Orbit Securities said yesterday through its Weekly Market Synopsis that a noteworthy aspect of the auction was “the rising yields for all tenors”.

“One of the potential explanations for the upward trend in yields is the consideration of inflation by investors, as reported by the National Bureau of Statistics to be currently at 4.9 per cent,” Orbit said.

The inflation and T-bill yields are closely related and can have significant impacts on each other. As inflation rises, the nominal yield of T-bills will also increase to compensate investors for the decline in the purchasing power of their investments.

“This is because Treasury bills are issued with a fixed nominal interest rate, so as the rate of inflation rises, the real interest rate—the nominal interest rate minus the inflation rate—declines,” Orbit said adding “to maintain a positive real interest rate, the nominal yield must increase”.

The relationship between inflation and T-bill yields can be complex and can be influenced by several other factors, including changes in monetary policy, the state of the economy and expectations about future inflation.

Additionally, the relationship between inflation and T-bill yields can also vary depending on the stage of the business cycle, with the relationship tending to be stronger during periods of high inflation.

Speaking of inflation, Alpha Capital Head of Research and Financial Analytics, Imani Muhingo said, NBS released a year-on-year inflation report last month that showed a 9.8bps increase on the headline inflation to 4.94 per cent, ending the two months easing of the metric.

The core inflation slightly rose by 5.7bps to 2.55 per cent, ending its three months decline since September 2022. The highest increase was on food crops and related items, by 15.5 per cent, accounting for 11 per cent of the total consumers’ basket.