Treasury bill rates start to rise after investors’ snub

• The latest six-month government paper attracted 83 bids worth Sh1.811 billion against a targeted Sh4 billion indicating the low appetite by investors for the paper and the government accepted all the bids.
• George Guy, a fixed income dealer at Genghis Capital said that yields reversed the downward trend to attract investors. He noted that the higher yields were also influenced by the 15-year-bond whose auction was held on Wednesday.
• Last month institutional investors traded bonds worth Sh86.91billion in response to falling interest rates, the highest value of bonds traded in more than two years.

Treasury bill yields appeared to reverse their downward trend after investors kept away from the weekly auctions denying the government funds needed to payoff short-term maturing debts and fund its operations.

This week the yield on 91-day Treasury bills rose by 0.132 percentage points to 7.647 per cent from 7.515 per cent.

The yield on 182-day Treasury bills rose by 0.272 percentage points to 9.265 per cent after consistently declining during the prior six auctions.

The latest six-month government paper attracted 83 bids worth Sh1.811 billion against a targeted Sh4 billion indicating the low appetite by investors for the paper and the government accepted all the bids.

Only 89 per cent of these were competitive, indicating that investors have been bidding higher and pressuring up the rates. The three month government paper attracted bids worth 4.95 billion against a target of 4 billion.

George Guy, a fixed income dealer at Genghis Capital said that yields reversed the downward trend to attract investors. He noted that the higher yields were also influenced by the 15-year-bond whose auction was held on Wednesday.

“I can attribute this (yield going up) to the fact that it (182-day bill) was undersubscribed. Most investors have been shying away from T-bills,” said Mr Guy.

Yields on the three- and six-month papers kicked off a downward trend in the first week of August and had dropped to a low of 7.515 and 8.993 per cent respectively.

The 15-year-bond on the other hand attracted 703 bids worth Sh24.15 billion against a targeted Sh15 billion and the yield only dropped marginally to 12.089 per cent from 12.388 per cent during the last auction in April last year.

READ: Treasury 15-year bond attracts bids worth Sh24bn

“Probably next week we may see the yields going up higher but once investors get confident then we might see them stabilise,” said Mr Guy.

The Central Bank of Kenya has been pushing down the rates in response to falling inflation. The Kenya National Bureau of Statistics last month said that the cost of living decelerated to 6.09 per cent in August from 7.74 per cent in July the lowest it has been in more than a year.

The banking regulator cut its benchmark rate to 13 per cent from 16.5 per cent this month in response to the slow rise cost of living.

The value of bonds traded has gone up sharply over the past few weeks a move that the Central Bank and analysts have attributed to the falling returns in the Treasury bill market.

As at Friday last week, bonds worth Sh49.56 billion were traded over a two week period, an amount that exceeds monthly turnover in the past 13 months, bringing the cumulative turnover of bonds traded since the year began to Sh381.2 billion.