Treasury bills interest rates rise even as investors put in huge bids

Interest rates on short-term government treasuries edged up last week after weeks of falling even as investors returned with heavy bidding in the initial November auctions.

Central Bank was in the market for a total of Sh16 billion through the 91, 182 and 364-day Treasury bills and with the market recording improved liquidity, investors put in bids worth a total of Sh29.2 billion, representing an 82 per cent oversubscription.

A total of Sh22.6 billion was accepted out of the bids submitted by investors.

The interest rate on the 91-day paper went up to 8.11 per cent from the previous week’s 8.03 per cent, while the 182-day paper offered a rate of 10.3 per cent, up from 10.27 per cent.

The 364-day paper rate was up to 10.6 per cent from 10.58 per cent.

As investors pumped into the short-term securities, they did not offer as much support for the Sh10 billion tap sale of the infrastructure bond, subscribing only 74 per cent in contrast to the first sale, which had a 116 per cent subscription rate of Sh35 billion versus a target of Sh30 billion.

“Liquidity in the market improved and bids on the short end of the curve picked up. Expectations are that (rates) will now stabilise at these levels going forward,” said Genghis Capital in a market brief.

“The infrastructure bond tap sale underperformed raising only Sh7.43 billion against a target of Sh10 billion. Now that the tap sale is closed, we may see more activity on the secondary market going forward.”

In recent weeks, CBK has been taking up a large percentage of the bids submitted in treasury auctions to cover for the heavy maturities in domestic debt.

READ: Rising interest in T-bills dims banks’ prospects

Last week, the total maturities for all three tenors of T-bill stood at Sh25.3 billion, out of which Sh10.4 billion was in the 91-day paper.

In the first four months of the fiscal year (July 1 to October 31) Sh339 billion worth of domestic debt was up for redemption while the government had accepted Sh443.3 billion in bids on T-bills and bonds, resulting in new borrowing of Sh104 billion.

The Treasury has also raised the amount it is targeting domestically by Sh59 billion to Sh294 billion, as shown in the newly released 2016 Budget outlook paper (BROP).

This signals potential upward pressure on interest rates.

At the same time, the target for external borrowing was cut by Sh174.7 billion to Sh287.6 billion.

Banks are particularly watching the revisions with interest, given that they have been increasing their exposure to government debt in reaction to the law capping the rates they can charge on customer loans.

Equity Bank announced on Thursday that its investment in government securities had increased by 156 per cent to Sh82.4 billion year-on-year as at September 30, 2015.