Treasury bills hurt by repeal of loans caps
John Otini
Tight liquidity in the market and private sector lending has slowed down the uptake of short-term government debt pushing subscription rates down to 53 per cent.
T-bills remained undersubscribed in the last two weeks with the subscription rate coming in at 53.5 per cent, down from 55.3 per cent the previous week.
“The undersubscription is attributable to reduced participation by banks who are now looking to lend to the private sector after the repeal of the rate cap legislation,” said Cytonn Investments in a market report.
This means the government will in the short term struggle to meet its borrowing needs by issuing tap sales but banks are, however, expected to maintain positions in T-bills to provide liquidity buffers in their balance sheets.
Analysts also said the undersubscription is partly due to tight liquidity in the market.
Interbank rates last Friday stood at five percent from lows of two per cent last month.
“This is due to elevation of interbank rates, reducing money supply for investment in T-bills,” said Martin Kirimi, a fixed income dealer at Standard Investment Bank.
Returns on investment
The yield on the 91-day and 364-day paper remained unchanged at 7.2 per cent and 9.8 per cent, respectively, while that of the 182-day paper declined by 0.1 per cent points to 8.1 per cent, from 8.2 per cent recorded last week.
Repeal of commercial bank lending rates now allows banks to make more returns on investments by lending to the private sector.
This has also been caused by the government directive to parastatals to reduce their participation in the fixed income market.
Fitch Ratings, an American credit rating agency, last week affirmed through a press release that Kenya’s Long-Term Foreign-Currency Issuer Default Rating was at B+ (plus) with a stable outlook.
This rating is informed by the country’s high levels of debt, both domestic and external, against a strong and stable growth outlook.
Secondary market activity declined 34.1 per cent week on week to 3.1 billion. The results of this month’s primary bond sale were released last week and came slightly below expectations.
Safe option
Analysts also said this was anticipated as banks have options to put their money in as opposed to before when the government was the only viable and safe option for them to do so.
Kenya Bankers Association communication director Nuru Mugambi said after the repeal of the rate cap, it would take about three months for the private sector to fully start feeling the impact of the policy change.
“We expect subdued trading session in the week with most of the institutional investors taking a back seat.
The market is anticipating a Tap Sale following the rejection of 9.73 billion,” said Churchill Ogutu, a fixed income analyst at Genghis Capital.
