Treasury bill yields begin rising after falling for few weeks

What you need to know:

In the latest auction, the 91-day T-bill paper was sold at a rate of 9.941 per cent having risen by 0.279 percentage points from the previous week.
The rate on the 182-day paper was 11.707 per cent last week, an increase from 11.099 per cent the previous week.

Three- and six-month Treasury bills have started to rise in line with analysts forecast that the recent fall in yields on government paper was unlikely to last.

In the latest auction, the 91-day T-bill paper was sold at a rate of 9.941 per cent having risen by 0.279 percentage points from the previous week.

The rise happened despite the fact that the subscription was three times the offer by the Central Bank of Kenya (CBK).

Analysts noting that the 364-day paper has been at about 12.5 per cent for two consecutive weeks said the CBK appears keen to ensure rates for all the short-term government securities are not too divergent at the primary market.

“I think the CBK may be trying to ensure we have the T-bill rates that do not show huge differences. They probably reckon that 11 to 12.5 per cent is a good range for the 91- to 364-day T-bills,” said Alexander Muiruri, a fixed-income trader and analyst at Nairobi-based investment bank Kestrel Capital.

The rate on the 182-day paper was 11.707 per cent last week, an increase from 11.099 per cent the previous week.

“The market does not want big gaps between the different tenors of the T-bill. The 91-day T-bill being the benchmark linked to the Kenya Bankers Reference Rate (KBRR) should not have a big gap with the 364-day paper,” said Mr Muiruri.

The KBRR is the base lending rate used by banks in lending, after adding their markup (k) or premium.

The CBK acceptance or rejection of bids with high yields has been dictated by the liquidity in recent weeks. The CBK has injected liquidity into commercial banks following increased government spending.

“The high liquidity can be attributed to the Central Bank activity of pumping in money through reverse repos,” said Cytonn Investments in a recent report.

A major indicator of the control the CBK has assumed in the money markets in recent weeks is the big fall in the interbank rate now at 4.3 per cent compared to 5.97 per cent two weeks ago.

At the height of the cash crunch, the interbank rate rose to nearly 26 per cent as the CBK closed the discount window in a bid to push interest rates up to support a weakening shilling.

However, lending rates have not changed much despite the downward movement in the T-bill rates some weeks back. At the height of the cash crunch the 91-day T-bill rate stood at 22.5 per cent before coming down to 9.2 per cent and then rising again to the current 9.9 per cent.