Investor appetite for the shorter term 91- and 182-day government securities waned last week as interest rates fell further as attention turned to the one-year paper.
The rate on the 91-day Treasury bill is currently at an eight-month low of 8.59 per cent, while the 182- day paper rate of 10.6 per cent is the lowest since the end of November.
Investor bids on the Sh4 billion 91-day paper came in at 61.2 per cent (Sh2.48 billion), while the Sh6 billion 182-day paper attracted only 28.9 per cent in bids at Sh1.73 billion.
During the previous week’s auctions, subscription rates on the two securities stood at 61.9 and 212.6 per cent respectively.
On the other hand, the subscription rate on the Sh6 billion 364-day T-bill went up week-on-week from 202 per cent to 270 per cent. Bids worth Sh16.23 billion were received last week, up from the previous Sh12.1 billion.
“The decline in participation in 91-day and 182-day treasuries is an indication that investors are expecting rates to remain low and stable in the short term. The increasing interest in the 364-day indicates that investors expect rates to increase in the next fiscal year, thus the bias towards longer dated paper,” said Cytonn Investments in a weekly markets summary.
Cytonn, however, reckons that the yields are nearly bottoming out, and so should oscillate around the current levels in the short term.
Analysts at Genghis Capital say that the decision by the Central Bank of Kenya to hold the base lending rate at 11.5 per cent has also served to calm the market over some interest rate uncertainty that had begun to creep in.
A stable exchange rate and falling inflation have allowed the CBK to hold the rate, with the regulator also building up forex reserves that offer further confidence to the money market.
The tightening monetary policy seen last year had led to the upward pressure on T-bill rates in the last quarter of 2015, carrying forward into January this year.
“Inflation is likely to sustain within the range of five to 6.8 per cent in the first half of 2016. As a result, we expect easing pressures on primary yields …furthermore, controlled inflation will provide the MPC with more room to effectively retain its current monetary policy stance,” said Genghis Capital in a fixed-income outlook report.