Interest rates on government bonds on the rise again

Interest rates on government securities, which have been on a downward trend, have edged upwards following the conclusion of the Sh31.6 billion infrastructure bond.

In a move that points towards a possible shift of the yield curve in the coming weeks, most of the Treasury bonds have seen their returns rise as investors seek to reverse a year-long slide.

With a shift in the curve, it could herald increase of interest rates.

Maturity

Of the 61 listed bonds, 36 reported an increase in yield in the week ending Friday August 26, as the result of the new bond which attracted 7.293 per cent rate against the offered coupon of six per cent. It had an average maturity of 7.25 years.

With inflation at 3.6 per cent, all the Treasury bills maturities have lately been below inflation including the 364-day paper.

Twenty-six of the 61Treasury bonds currently trading at the Nairobi Stock Exchange were trading at a return below the rate of inflation as at August 26 this year.

This means that the investors were buying the instruments at prices which were so high that they would not make any money if they resold them without waiting for capital appreciation that could only come with time.

The T-bill has also risen for the fourth consecutive auction with the latest auction showing that the rate went up by 20 basis points to 2.202 per cent for the 91-day t-bill.

He said that the rise in the yield curve seemed to have been affecting only the long-term bond rates of 12 to 25 years, but it now seems that the medium-term notes are also affected.

“One has to wonder if the entire curve will move upward,” Mr Muiruri said.

However, while rates are higher, the economy is also expected to be better as the government coffers have been heavily boosted with Sh30.59 billion for projects.

The government planned to raise Sh31.6 billion and missed Sh1 billion which it now has to find to plug the budget deficit as initially provided for in the 2010/11 budget.

The total subscription was Sh34.081 billion, but the government rejected the rest of the amount because it demanded a higher premium which the state was not prepared to give.