Investors have raised their appetite for the longer dated 182- and 364-day Treasury bills as interest rate expectations rise and the market assesses a potential peak of returns on fixed income assets.
The subscription rate for the 364-day paper, for instance, rose to 45.5 percent in August from 40.6 percent in July, while the subscription rate for the 182-day paper hit 111.5 percent from 64.8 percent, according to data from the Central Bank of Kenya (CBK).
Demand for the favoured 91-day paper dipped slightly in August to 286.5 percent from 352.2 percent as investors sought to lock in a high return amid a downward trend in Treasury bill rates.
Treasury bill rates have been on the decline for eight straight weeks with the latest return from the 91-, 182- and 364-day papers at 15.7463, 16.6157 and 16.8130 percent respectively as of last week.
Investors bid Sh10.5 billion into the 364-day paper last week, exceeding the target of Sh10 billion, while subscriptions to the 182-day paper stood at Sh8.4 billion.
The 91-day paper was, however, still the most subscribed with bids of Sh11.3 billion.
Analysts expect the shift in T-bills subscriptions to continue as domestic interest rates remain on a downward trend even as the 91-day paper remains the darling of investors.
“We continue to see comparative higher subscriptions for the 91-day and lower subscription for the 182-day and 364-day T-bills since March 2022, but this trend is likely to change once interest rates are set on a clear path downwards,” noted analysts at Sterling Capital, an investment bank.
Investors had favoured packing money in the shorter maturing 91-day paper amid a rising interest rate environment to avoid holding funds at a lower return as yields rose further.
The recent shift in the direction of interest rates has, however, driven interest towards longer dated T-bills as investors seek to lock in returns from lengthier papers as the high yields unwind.
The CBK is expected to be pivotal to the direction of interest rates in the domestic market over the short- to medium-term from its benchmark rate setting role.
Interest rate cuts in advanced economies, including the US, are expected to increase CBK’s scope to further trim local lending rates, following up its 0.25 percent cut of its benchmark rate in August when it holds its key policy meeting on October 8.
A lower benchmark interest rate is widely expected to drive other domestic rates lower, including interbank rates, yields on Treasury bills and bonds, fixed deposit and savings rates. Low inflation and the end of exchange rate volatility have anchored the downward pressure on interest rates.
