Capital Markets

Bidders snub short T-bills on rate cap jitters

Treasury building in Nairobi
Treasury building in Nairobi. Investors continued to shun short-term treasuries despite improved liquidity. FILE PHOTO | NMG 

Investors continued to shun short-term treasuries despite improved liquidity, with analysts attributing this to uncertainty on interest rate regime ahead of the Budget Statement.

Central bank of Kenya (CBK) data, however, showed scramble for one-year papers persisted as cash-rich investors, largely commercial banks, looked to lock in higher returns.

The 91-day Treasury bills were undersubscribed for the second week in a row with auction last Thursday attracting Sh905.39 million in bids, or 22.63 percent, of the Sh4 billion on offer compared with 58.36 percent uptake the week before.

Uptake of the 182-day debt issue, which has remained below the weekly quorum of Sh10 billion since April 4 auction, fell to a fresh low of Sh810.08 million or 8.1 percent of the amount on offer. Appetite for the one-year papers on the other hand continued to rise, with subscription coming in at 261.13 percent of the Sh10 billion offered by the CBK. The weekly sale of 364-day T-bills have been oversubscribed since May 9. “The investors in T-bill need to manage uncertainty but still maximise returns, resulting in the 364-day T-bill remaining oversubscribed,” analysts at AIB Capital said in a note on primary bond last Friday. The CBK, the fiscal agent for the Treasury, accepted all the bids for three- and six-month securities for average yield of 6.91 percent and 7.61 percent, respectively, slightly reduced from 7.00 and 7.65 percent a week earlier.

The bank accepted Sh15.58 billion, or 59.68 percent, of the Sh26.11 billion bids it received for largely unchanged average interest of 9.3 percent.


Legislators last year shot down the Treasury’s bid to scrap the September 2016 legal caps on interest rates in the 2018 Finance Act, a push likely to be renewed in the Finance Bill 2019.

Kenya implemented legal ceilings on loan charges in September 2016 in a bid to enable micro- and small-sized enterprises access affordable credit from commercial banks.

Most commercial banks have, however, suspended unsecured lending to the MSMEs, citing a higher risk profile than the four percent allowed by the law.