Poor T-bills uptake amid low liquidity

State borrowing in the domestic market has maintained a low subscription trend with local investors staying away amid low liquidity.

Central bank data shows the 91-day, 182-day and one-year bills received bids worth Sh13.25 billion against the advertised Sh24 billion in the week ending December 5, representing a performance of 55.2 per cent.

Despite the demand being higher than previous week auction that attracted Sh8.4 billion worth of bids representing a performance of 34.8 percent, the subscription in the last four weeks has been below expectations.

Genghis Capital senior research analyst Churchill Ogutu has attributed this to tight liquidity in the market. “There are a number of dynamics; one preference for Treasury bills is usually pushed by excess liquidity so it may be that or an indication of investor preferences to look at other papers,” Mr Ogutu said.

“Liquidity has dried up and slowed down uptake; you can see it in the interbank rate indicating how liquidity has been over the past two months. It may also be a factor of end of year cyclic effects where investors tend to stay away towards the end of December and come in early next year.”

Interbank rate has been rising since November 14 from 2.97 percent, registering at 6.52 percent on December 5, making it hard for commercial banks to lend each other.

The liquidity has been affected following a directive by the National Treasury to all ministries to return cash held in bank accounts to reduce cost of borrowing. This has seen state corporations, public universities and independent government agencies hesitate in tendering offers for the short-term securities.

This leaves the market to commercial banks, non-bank financial institutions including insurance firms and pension funds, stock brokers and investmrnt advisors to take up the domestic issues.e analyst has also projected the effect is likely to increase government borrowing in the next quarters.