T-bills uptake stays low for fourth straight week despite high liquidity

Demand for Treasury bills remained subpar with the auction undersubscribed for the fourth straight week despite a liquid money market that has seen this month’s bond offer attract bids worth Sh151 billion.

The T-bill auction last week which sought the usual Sh24 billion realised bids worth just Sh13.1 billion, which was all taken up by the Central Bank of Kenya (CBK).

The amount was not sufficient to cover the maturities of Sh20.4 billion that fell due last week, meaning the government ended up making a net repayment of Sh7.3 billion on the short term securities.

Rates on the 91 and 364-day papers edged up by 8.9 and 6.8 basis points respectively to 6.87 percent and 7.845 percent respectively, while the rate on the 182-day tenor was unchanged at 7.25 percent.

Despite the market remaining liquid in the past month, the uptake of the T-bills has been largely lukewarm, with investors eyeing the much higher rates being offered by the bonds market.

The CBK has also tightened its uptake of T-bills by rejecting expensive offers.

As a result, the share of total securities that is in form of T-bills has fallen to 20.06 percent, with 79.94 in bonds. Three years ago, T-bills accounted for 38.03 percent of total outstanding government securities.

Lowering the share of debt in form of T-bills has reduced the refinancing risk for domestic public debt.

The government is avoiding using T-bills for budget deficit financing, hence the stance of taking up just enough to cover maturities even when there is an oversubscription.

So far in the current fiscal year, the State has borrowed a net of Sh278 billion from the domestic market, all from the bonds market and well ahead of target in a year when it expects to take up Sh658.8 billion in local borrowing.

The prorated target amount for the first quarter of the fiscal year (three months to September) is Sh164.7 billion.