•Treasury bill auction received bids totaling Sh19.8 billion against an advertised amount of Sh24.0 billion.
•The CBK has been issuing an average of Sh50 billion in domestic bonds every month since January last year, largely to pay pending bills and to support infrastructure.
The appetite for government paper remained depressed last week as the Central Bank of Kenya reported an under subscription in its securities.
Last week, the Treasury bill auction, received bids totaling Sh19.8 billion against an advertised amount of Sh24.0 billion, representing a performance of 82.4 per cent.
CBK in its weekly bulletin says the auction in treasury bonds for the six-year switch infrastructure bond issued also reported a subscription of 60.3 per cent, to receive bids totaling Sh52.9 billion.
This is against an advertised amount of Sh87.8 billion.
According to experts, the under subscription in government papers signals reduced confidence in the market
“Bond turnover in the domestic secondary market declined by 18.4 percent during the week ending December 1. In the international market, yields on Kenya’s Eurobonds declined by an average of 67.6 basis points, with 2024 maturity declining by 126.4 basis points,” CBK said in a statement.
However, interest rates remained stable, with 91-day, 182-day and 364-day Treasury bill rates increasing marginally.
Hard hit by roaring inflation and an upward review of interest rates by CBK to stem the high cost of living, the bond market is wading through a tough period that may expose investors to losses.
Treasury bonds are an important component of a country’s financial system and represent a critical component of central banks’ monetary policy.
They act as a benchmark interest rate and form part of the yield curve, which conveys important information for monetary policy.
Ken Ouko investment coach at Ken’s MoneyMatters termed the dip in the government’s securities as false, saying it is likely driven by a surge in commodity prices and a lack of adequate liquidity in the market.
The CBK has been issuing an average of Sh50 billion in domestic bonds every month since January last year, largely to pay pending bills and to support infrastructure.
With government securities worth Sh87.8 billion due to mature in January, the government is mulling a conversion of the maturing bills.
The Treasury is looking to convert Sh87.8 billion worth of government securities that are due to mature in January into a medium-term infrastructure bond, in order to avoid a cash crunch early in the New Year.
The direct conversion of maturing Treasury bills and bonds into longer-term security, which is known as a switch bond, has been done only once before by the Treasury, in June 2020.
In June 2020, the switch bond was also in form of a six-year infrastructure paper, which netted Sh20.2 billion out of a target of Sh25.6 billion—the worth of a maturing one-year Treasury bill that the state was looking to roll over.
The latest data from the National Treasury shows the state is expected to service Sh461.4 billion in redemptions and Sh553 billion interest on domestic debt in the current financial year.
The total stock of domestic debt currently stands at Sh4.4 trillion, Sh3.6 trillion in bonds while the balance is in Treasury Bills.
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