3-month T-bill uptake doubles as yields slide to seven-year lows

Bids for the three-month government securities were nearly double the amount the Treasury offered at the weekly auction last Thursday, even as yields touched lows last seen in July 2013 signalling sudden jump in appetite by investors.

Central Bank of Kenya (CBK), the State’s fiscal agent, said Friday bids for the 91-day Treasury bills amounted to Sh7.502 billion against the weekly quantum of Sh4 billion despite continued slide in returns.

This represents an oversubscription of 87.56 percent for the benchmark debt securities which mature in three months, the first in several months. The CBK snapped up all the bids for the 91-day paper.

Average interest on the three-month T-bills dropped by a further 10.2 basis points to 6.498 percent during sale last Thursday compared with 6.600 percent a week earlier.

The yields on the 91-day T-bills have been falling marginally but steadily since the auction on April 4 when they averaged 7.444 percent.

The scramble for government securities, largely by commercial banks, point to a worrying trend where the government continues to be the largest beneficiary of the September 2016 legal ceilings on loan charges at the expense of SMEs.

Cash-rich firms use T-bills auctions as cash management instruments besides generating returns.

“For some of the players in the market, mostly the banks, they would rather be just safe at a lower yield than put the cash in real economy where it might be at risk. There’s some flight to quality at play,” Churchill Ogutu, a senior research analyst at Genghis Capital, said via telephone on Friday.

“The market is also quite liquid and even in terms of secondary trading, we have seen for the first four days of the (last) week through Thursday, they already did Sh20 billion which is about 34 percent higher than the previous week.”