High liquidity in debt market pushes down Treasury bill interest rates

High liquidity in the debt market has pushed down interest rates on short-term government paper over the past two weeks in a trend that could make the investment less attractive if sustained.

The yield on the 91-day Treasury bills has seen the largest decline, climbing down from 11.43 per cent in the first week of the month to stand at 9.27 per cent this week.

The rates had hit a 2014 high at the end of June. Now the 182-day and 364-day Treasury bills have fallen by 0.6 per cent each from 11.58 and 11.78 per cent respectively in the past fortnight.

“The Government was closing its financial year at the end of June and generally required a lot of money. Maturities were also high giving investors liquidity to put in,” said Family Bank treasury manager Joseph Gathege.

He said the Treasury’s actions were also affecting supply. “While liquidity remains high, we have seen the Treasury (this week) signal it is reducing the borrowing by issuing T-bills for Sh3 billion instead of Sh4 billion amounts.”

He added that lowering interest rates on the Treasury bills will spur the bonds market, which has been slow, by raising prices.

Treasury bill issues between June 26 and July 9 were heavily oversubscribed due to the low supply.

Three bill issues totalling Sh12 billion — the 91-day, 182-day and 364-day — attracted bids of Sh19.5 billion, Sh14.4 billion and Sh17.2 billion respectively.

Last week, the central bank’s Sh4 billion 91-day paper received 266 bids amounting to Sh8.4 billion with acceptance at Sh4.4 billion reflecting the high liquidity in the market.

Three T-bills this week

“The market-weighted average rate was 10.317 per cent and the weighted average of accepted bids applied for non-competitive bids was 9.727 per cent down from 11.408 per cent in the previous auction” said Gerald Nyaoma, director of financial services at CBK, in a statement.

CBK offered Sh3 billion worth of each T-bill this week in the auctions on Wednesday and Thursday.

The high investor appetite in the debt market was seen in the oversubscription of the Britam Bond, which achieved the targeted Sh6 billion in one tranche averting need for a second issue as planned by the insurer.

Investors have been attracted to corporate bonds because of their higher interest rates. Britam’s five-year notes will pay interest of 13 percent, payable every six months.