T-Bill records low sale as investors seek better options

Results for the 182 day treasury bill released on Friday showed a massive under-subscription as investors conserved cash to participate in the third infrastructure bond which closes on Wednesday.

Analysts say that investors are moving to take part in the infrastructure bond as they seek to capitalise on possible gains as a result of yields in the fixed securities market declining.

“Such bonds will probably be oversubscribed because the yields or interests are very high,” says Johnson Nderi of Suntra Investment Bank.

Investors’ drive towards long-term bonds is from expectations that prices of the assets will appreciate as the government pushes ahead with its drive for lower interest rates.

There is an inverse relationship between the price of the bonds and interest rates, as rates reduce, the value of assets appreciates and as the Central Bank of Kenya lowers its rates, the long-term bonds become more attractive.

Statistics from the Nairobi Stock Exchange show that bond activity has been vibrant in the market.

Friday saw investors only take up Sh4.9 billion of the Sh7.5 billion which was on offer for the 182-day paper representing an under subscription of 34 per cent and analysts say that this is a sign that the long-term bonds such as the infrastructure bond look attractive.

The automation of bond trading through the Automatic Trading System platform and the splitting up of bonds in small chunks of Sh50,000 has also eased their increased the level of activity.

A country report by the investment bank Renaissance Capital says that interest rates are likely to go down even as the government borrows more of short-term rates to fill the deficit gap and to finance the second stimulus package in the 2010-2011 fiscal year.

But the report, however, says that it is the bonds market which will suffer.

“As interest rates fall, we expect to see fund managers reducing their exposure to bonds as they seek higher returns with riskier asset classes; with equities being the immediate beneficiaries, in our view,” says the country outlook report.

CFC Stanbic Financial Services Weekly report paints a different picture.

It states it expects interest rates to continue coming down and that yield especially on intermediate bonds, such as the government’s infrastructure bond, will lead to lower yield.

This is expected to cause an appreciation of such bonds.