Investors keep off short-term T-bills as yields dip

Fixed-income investors largely stayed away from the six-month and one-year Treasury bills as yields came down further this week to approach the single-digit rates.

For the 182-day paper, the yield stood at 10.092 per cent having slipped 0.111 percentage points from the previous auction. The subscription was only Sh474 million against the Sh6 billion offered by the Central Bank of Kenya (CBK).

The 364-day paper came in at a yield of 11.934 per cent, down 0.152 percentage points from the previous auction. The subscription was also low at only Sh1.158 billion against an offer of Sh6 billion just as was the case for the 182-day T-bill.

“The total number of bids received was 77 amounting to Sh0.474 billion representing 7.9 per cent and 56 bids amounting to Sh1.158 billion representing 19.3 per cent subscription for the 182 and 364-days respectively,” said the CBK. The Treasury expects to use some of the proceeds to settle previous T-bills maturities amounting to Sh2.689 billion.

Analysts said retail investors kept off the auction convinced that the CBK was only going to take low bids.

“Retail investors are not keen on the Treasury bills because their yields have really fallen. They tell us they are going for fixed deposits in banks,” said Crispus Otieno, a fixed-income dealer at brokerage house AIB Capital.

Mr Otieno noted fixed deposits are fetching up to 16 per cent for cash-flush entities and individuals, effectively competing with the rate on government securities.

At the height of the liquidity crisis in October, a commercial bank treasury dealer said some corporate entities were given as high as 27 per cent rate on fixed deposits by some cash-starved banks as the regulator closed the discount (or emergency) window.

The window was closed between July and the day Imperial Bank fell (October 12), when the regulator realised the looming escalation of the funding crisis needed the liquidity pipelines to be open.

While the 182-day and the 364-day T-bills were undersubscribed, the 91-day was slightly oversubscribed at further reduced rate.

The three-month paper realised Sh4.479 billion worth of bids at a yield of 9.21 per cent — which is a decline by 0.358 percentage points from the previous auction.

The five-year bond was oversubscribed to the tune of Sh32.998 billion against an offer of Sh20 billion. The issue realised a yield of 13.92 per cent — slightly down from the 14.273 per cent in the previous auction conducted in July.

The CBK accepted Sh30.7 billion, which was Sh10.7 billion more than offered, thereby nearly offsetting the entire amount that could not be raised through the Treasury bills.

In an analysis, Nairobi-based Kestrel Capital said it had expected the bond bids to be accepted with a cut-off point of 13.75 per cent yield, noting that there was liquidity in the market.

“We expect the five-year bond auction to yield an average rate of 13.250 per cent with a potential cut-off yield of 13.750 per cent...there’s enough liquidity in the system to keep bond yields subdued,” said Kestrel Capital in a note to clients just before the results were unveiled.