T-bills uptake falls on tight liquidity

The Treasury raised less than half the cash it sought from investors in a week of tight liquidity that pushed bank-to-bank lending rates to a four-month high.

Out of the Sh24 billion it sought, the Treasury received bids amounting to Sh11.048 billion, a performance rate of 46.04 percent.

The week was marked by sharp decline in market liquidity that saw the interbank rate hit 7.65 per cent last Thursday, the highest since August 10 when the rate was at 7.77 percent.

The liquidity crunch started the previous week, just after many banks and companies were meeting tax requirements that normally have the 20th of every month as the deadline. This affected even the cash reserves kept with the Central Bank of Kenya that were below the legal requirement of 5.25 per cent of the total deposits.

The interbank rate exceeded the 4.0 mark on November 19 and continued rising to surpass the 5.0 percent mark on November 22 and the six per cent mark on November 29.

The rising rates put pressure on the T-bill market so that by the day of the auction on December 6, the interbank rate had jumped to 7.65 percent.

The worst performer during the auction of government securities was the 182-day or six-month treasury bill where only Sh992.24 million was subscribed for against an offer of Sh10 billion. The 364-day T-bill had a subscription of Sh3.145 billion even though the offered amount stood at Sh10 billion.

The 91-day Treasury bill, however, saw an oversubscription in both absolute amounts and in relative terms. It had the biggest subscription of Sh6.91 billion against an offer of Sh4 billion.

For the 91-day and the 182-day the interest rate for the accepted bids has been falling in recent weeks, but for the 364-day paper the rate has been rising in recent weeks. Overall, however, the CBK strategy to keep government borrowing rates down has held true for the better part of the year.