The recent auction of Treasury bills witnessed a significant decline in investor bids, recording a 77.0% decline to Kshs 9.1 bn from the previous week’s Kshs 39.5 bn. This sharp drop raises concerns about reduced interest in Treasury instruments or a tightening of liquidity in the money markets. The overall subscription rate of the bids was disappointing, reaching only 38.1% of the Kshs 24.0 bn offer amount compared to the oversubscription rate of 164.5% recorded last week. The Central Bank of Kenya (CBK) accepted Kshs 8.9 bn of the submitted bids, out of which Kshs 4.9 bn represented competitive bids.
Read more: Treasury Shifts from Issuing Long-Term Bonds Towards Shorter-Dated Bonds
Despite the decrease in demand for Treasury bills, the average interest rates on accepted bids increased. The return on the 91-day paper rose to 12.4% from the previous 12.2%. Similarly, returns on the 182-day paper saw an increase, reaching 12.4% from 12.3%, while the returns on the 364-day paper remained relatively unchanged at 12.7%. This rise in interest rates is attributed to investors seeking higher risk-adjusted returns due to the impact of rising inflation and the government’s increased domestic financing requirements.
Read more: Yields on Government Securities Breached 16.0% in the Primary Market
The decline in interest for Treasury bills aligns with the high interbank lending rate, currently at 14.8%, indicating tighter financing conditions between banks on overnight lending facilities. Commercial banks, being major participants in Treasury bill purchases, faced challenges as they fell short of the 4.25% cash reserves requirement by Kshs 18.2 bn. As a result, most investors showed a preference for the shorter-term 91-day paper in the auction, recording an oversubscription rate of 176.8%. Looking ahead, the CBK is expected to reopen the T-bills auction to cover Kshs 28.7 bn in rollovers and raise an additional Kshs 4.7 bn from the weekly sale.
Read more: All Kenya Government Securities Now Yielding Above 12.0%
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