Treasury bill auctions undersubscribed on tight liquidity
The Central Bank of Kenya building in Nairobi. Government debt issues were undersubscribed across-the-board last week as tight liquidity hit the money markets. PHOTO | FILE
What you need to know:
Government debt issues were undersubscribed across-the-board last week as tight liquidity hit the money markets.
There were no bond redemptions in January, therefore denying some investors a source of inflows with which to invest in the market.
Commercial banks also felt the pinch of the tight money market.
Government debt issues were undersubscribed across-the-board last week as tight liquidity hit the money markets.
Results released by Central Bank of Kenya (CBK) for the Treasury bill auctions show bids amounted to about half of the offered amount, with investors adopting a wait-and-see attitude on rates.
The Sh3 billion 91-day T Bill auction attracted bids worth Sh1.26 billion, capping a month during which only one of the four auctions of the paper saw full subscription.
The issue has a rate of 8.57 per cent making it less attractive to investors than other government securities in the market.
The 182-day and 364-day T-bill issues for Sh4 billion and Sh5 billion also saw below par demand with bids worth Sh2.6 billion and Sh2.3 billion respectively last week, at rates of 10.3 and 10.9 per cent.
“The money market was relatively tight during the week ending January 28, largely on account of T-Bond sales and tax remittances by banks which more than offset injection through government payments and repo maturities,” said CBK in its weekly market statement.
The regulator has also been mopping up excess liquidity for some months now to control volatility in the shilling exchange rate that has seen the shilling slide to three-year lows at 91.70 to the dollar.
Activity in the secondary fixed-income market was equally affected by the tight liquidity, as bond turnover at the NSE fell by 37 per cent week-on-week to Sh1.2 billion.
“The market remained subdued mainly on concerns over the direction of rates. In the coming week traders will (however) be hoping for more direction with the Market Leaders Forum meeting slated for February 4 (Wednesday). February has Sh31.5 billion in bond maturities and the market will be waiting to see how CBK propose to tackle this,” said Genghis Capital trading department in a market note.
There were no bond redemptions in January, therefore denying some investors a source of inflows with which to invest in the market.
Commercial banks also felt the pinch of the tight money market. According to the Central Bank, the clearing account recorded a deficit of Sh8.1 billion at the end of last week in relation to the cash reserve requirement of 5.25 per cent (Sh119 billion).
The decline in the clearing account balance was attributed partly to the lenders making a net payment for government securities, largely on the five- and 20-year reopened bonds which sought Sh20 billion and attracted bids worth Sh26.9 billion.
Due to the reduced cash reserves held by the banks, the average interbank rose over two percentage points in the last two weeks of January — from 6.3 per cent to 8.6 per cent.
The tight liquidity is, however, likely to ease in the coming days as the government started making disbursements to departments and contractors at the end of last week.
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