Tight liquidity in the money markets resulted in an undersubscription at the Treasury bill and bond auctions last week, with the regulator stepping in throughout the week to offer liquidity support to smaller lenders.
Auction results published by the Central Bank of Kenya (CBK) showed that the 20-year Sh40 billion Treasury bond whose sale closed on Tuesday attracted bids worth only Sh13.9 billion, with an acceptance of Sh10.5 billion.
In the Treasury bill auction, the subscription level stood at 88 per cent with investors offering Sh21.2 billion against the cumulative target of Sh24 billion for the 91, 182 and 364-day T-bills. The CBK accepted Sh21 billion.
This is in contrast with recent weeks’ T-bill performance, which has largely seen heavy oversubscriptions.
“The regulator has been in the market every day of the week to inject liquidity, a signal that their top priority is to keep the rates low, ahead of foreseeable headwinds,” said Genghis Capital in a market note.
“However, (borrowing) pressure has been deflated with net borrowing position from T-Bills perched at Sh73.65 billion in this first month of the fiscal year.”
The Genghis analysts said that despite the low subscription of the Treasury bond, the CBK is unlikely to issue a tap sale going by recent trends in the previous two auctions where the regulator opted out of an immediate re-opening of the longer-term tenor bonds.
The tight liquidity was reflected in the interbank market where rates have been climbing again after falling to a 13-month low of 2.78 per cent mid-July.
In the last two weeks, the rate at which banks borrow from each other has climbed to 5.53 per cent even as the regulator steps in through the reverse repo market to help shore up liquidity for hard-pressed smaller banks.
Trading in the secondary bonds market remained brisk, however, with turnover in the first four days of the week hitting Sh8.7 billion, already higher than the previous week’s total of Sh8.6 billion.
Analysts said that investors have turned to the secondary market to seek short-term bonds, in light of the Treasury’s recent trend in the primary market of selling long tenor paper.