Capital Markets

At 6-year low, investors still scramble for T-bills

Central Bank of Kenya
The Central Bank of Kenya head office: The 364-day paper got most attention with Sh52.2 billion bids. FILE PHOTO | NMG 

Treasuries investors overwhelmingly bid for the one-year instrument in last week’s auction as they sought to pack some of the high liquidity in short-term debt despite returns on the paper sliding to a six-year low.

The investors offered a total of Sh59.8 billion in the three T-bill tenors against a cumulative borrowing target of Sh24 billion, with the Central Bank of Kenya (CBK) taking up Sh31.1 billion.

Much of the attention was on the one-year paper that attracted bids worth Sh52.2 billion (Sh23.4 billion accepted).

In opting for the one-year paper at the expense of the three and six-month offers, investors were chasing the slightly higher yields in a market where rates generally slid.

In last week’s auction, the rates on the 91-day, 182-day and 364-day T-bills fell to a six-year low of 6.73 percent, 7.48 percent and 8.75 percent respectively.


Investors normally turn to short-term government debt when there is uncertainty over the direction of interest rates, looking to avoid long-term bonds so that they are more agile in terms of liquidity if rates were to go up.

The present uncertainty draws from the possibility of a repeal of the rate cap law, which if successful would likely edge Treasury yields up in tandem with the expected rise in bank customer loan rates.

In the past week, the rising liquidity in the market as a result of government payments and maturing domestic debt has also manifested in a weaker shilling in foreign exchange market.

On Friday, the shilling was exchanging at an average of 102.32 units to the dollar in the interbank market, compared to Thursday’s closing average of 102.29 units.

Its performance last week was also affected by end-month dollar demand from importers, especially those in the manufacturing and energy sectors who needed to settle overseas payment obligations.

Treasury’s reduced appetite for borrowing in the domestic market as the fiscal year drew to a close was also helping to keep the market liquid.

The government in May was able to access Sh210 billion in a Eurobond offer that went a long way towards closing the financing deficit in the 2018/19 budget.

It also reached an agreement with the Word Bank for a Sh75 billion budgetary support loan.