Interest rates on the 182 and 364-day Treasury bills last week rose for the sixth consecutive week as investors continued to demand a high premium on lending to the government in a tight market.
The rates on Treasury bills are now at their highest levels since April 2012 when the market was coming off the shilling’s heavy slide that saw it hit a low of 107 to the dollar in the fourth quarter of 2011.
The benchmark 91-day bill, in the meanwhile, jumped an astonishing 4.121 percentage points to 18.607 per cent in Thursday’s auction.
Investors are currently concentrating on short-term paper due to the current uncertainty in the interest rates regime.
The Central Bank of Kenya was in the market for a total of Sh8 billion through the 182 and 364-day offers last week, but got only a fraction in bids due to the tight liquidity in the market.
“The total number of bids received was 45, amounting to Sh210 million representing 5.31 per cent subscription and 87 bids amounting to Sh470 million representing 11.81 per cent subscription for 182 and 364 days, respectively,” said CBK in a statement.
“Bids accepted amounted to Sh210 million for 182 days and Sh400 million for 364 days Treasury bills. The weighted average rate of accepted bids, which will be applied for non-competitive bids, was 14.55 per cent for the 182-day and 16.3 per cent for 364-day Treasury bills.”
Analysts said the ongoing sale of the one-year Sh30 billion Treasury bond is also a factor in cutting demand for the Treasury bills. This is mainly because of its market-determined coupon rate, which analysts say is likely to see offers well above 15 per cent accepted.
“The offer of the one-year bond will push the yield on the 364-day paper upwards… the re-opening of the one-year will cater for those seeking to invest in the short segment of the market,” said Genghis Capital fixed income analyst Vinita Kotedia in a market note.
The rates on the T-Bills are an important reference point for issuers of corporate bonds, who usually add a margin of a number of percentage points when establishing the rate to pay creditors.
Floating rate corporate bonds are also tied to a Treasury bill rate, whereby their yield goes up or down in tandem with the T-bill rate.
According to Cytonn Investments, the increase in yields across all tenors of Treasury is also an indication that the government is keen to step up its domestic borrowing programme to bridge the fiscal budget deficit.
The Treasury aims to borrow Sh229 billion from the domestic market this fiscal year. According to CBK data, the government domestic debt stands at Sh1.393 trillion, which represents a reduction of Sh25 billion from the Sh1.418 trillion at the beginning of the fiscal year in July.
The fall in debt is mainly due to redemptions of treasuries outstripping new borrowing, where total government securities in issue stand at Sh1.319 trillion compared to Sh1.354 trillion in July. But the difference could be bridged from next month.