Demand for Treasury bills in Kenya has fallen sharply over the past two weeks, reflecting declining investor appetite for government securities.
Bids at this week’s auction totaled just KES 20.2 billion, down from KES 22.1 billion the previous week. The total bids represented an undersubscription rate of 84.1% of the KES 24.0 billion offered by the government, a significant drop from the oversubscription rate of 161.8% seen two weeks ago.
The Central Bank of Kenya (CBK) accepted KES 18.8 billion of the submitted bids, including Kshs 14.7 billion from competitive bids. Despite the weaker demand, yields on accepted 91-day, 182-day and 364-day Treasury bills rose by 27.2 basis points, 52.5 basis points and 43.9 basis points respectively.
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The higher yields indicate investors are seeking increased returns to compensate for rising inflation and increased government borrowing needs.
The declining appetite for Treasury bills comes as interbank lending rates have risen, signaling tighter liquidity conditions. According to CBK data, the average interbank rate reached 12.2% on Thursday, up from 11.7% the prior week.
The dual trends of falling demand at Treasury bill auctions and higher interbank rates suggest growing caution by banks and other institutional investors. This reflects concerns over inflation, government spending, and tighter monetary conditions.
The CBK will likely need to closely monitor demand for government securities and liquidity in interbank markets in coming weeks.
