Capital Markets

Interest rates on short-term paper face further fall

CBK

The Central Bank of Kenya. FILE PHOTO | NMG

Interest rates on short-term government debt are likely to fall further despite last week’s moderate rise in yields on the 91-day Treasury bill, with high liquidity in the market likely to continue weighing on the returns on the papers.

Analysts at Commercial Bank of Africa (CBA) said in their weekly fixed-income report that investors are likely to become bolder in their demand for higher interest after seeing the 91-day yield rise by 86 basis points to 7.69 percent in last week’s auction.

But the CBK is likely to ride on high demand from those seeking to roll over maturities to ward off the expensive bids.

There are Sh176.83 billion in government debt maturities and coupon payments in the five weeks until the end of April.

“Given the liquidity standing, it may therefore be premature to infer a shift in interest rate outlook from just a single data point, and on thin volumes (Sh2.74 billion worth of 91-day T-bill bids). Even then, markets may try to take cue and bid more aggressively in subsequent auctions,” said CBA in the report.

Falling yields

The 182-day and 364-day T-bills continued with their trend of falling yields, edging down by 4.4 and three basis points respectively to 8.23 and 9.4 percent in last week’s auction.The high demand for short-term debt in recent months, particularly the 364-day paper, has been driven by uncertainty over interest rate direction and high liquidity in the market.

The Central Bank of Kenya has also largely rejected bids it considers expensive, forcing investors to stick largely to the yield curve when lending to government.

The same has applied to Treasury bonds, where accepted bids have been largely limited to the yield curve is spite of heavy oversubscription in the face of a wide budget deficit.

The infrastructure bond whose auction was held last week attracted bids worth Sh29.4 billion, out of which the CBK took up Sh16.3 billion.

February’s five and 10-year bonds that sought Sh50 billion attracted bids worth Sh78.3 billion. January’s Sh40 billion two- and 15-year offer had bonds worth Sh101.97 billion, while a re-opening of the same in early February seeking Sh12 billion attracted bids worth Sh66.6 billion.