Interest rates on short term securities fell significantly for a second straight week as a liquid market saw investors compete to lend to government, which is currently flush with cash from external loans.
Results of last week’s Treasury bill auction published by the Central Bank of Kenya (CBK) showed that the rate on the 364-day paper fell to 8.1 percent from 8.65 percent in the previous auction.
The paper had recorded a drop in yield from 8.97 percent in the previous auction.
Yields on the shorter 182-day and 91-day offers also dropped last week, to 7.53 percent and 7.0 percent respectively from 7.73 per cent and 7.1 percent.
The lower interest rates are a result of a highly liquid market that has not met matching demand for cash from the government.
Investors bid Sh36.7 billion last week against the target of Sh24 billion, with the government taking up just Sh17.27 billion.
This was barely enough to cover maturities of Sh18.1 billion, which meant that for the second straight week the Treasury did not make any new borrowings on the T-bills, but rather ended up making a net repayment.
The same was seen in the bond auction which was done last Wednesday, where the Treasury only took up Sh19.7 billion out of the Sh64.9 billion investors had put on the table.
The bond’s advertised target was Sh30 billion, a lower quantum compared to the usual issuances of Sh50 billion that the Treasury has floated in recent months.
The lack of appetite for local debt has been driven in part by the government’s new borrowings from external lenders.
The Treasury is set to take into its accounts some $750 million (Sh80.9 billion) in development policy financing from the World Bank, and on Thursday successfully concluded the sale of a $1 billion (Sh108 billion) Eurobond whose proceeds will also go into budgetary support for the exchequer.