Investors remain hesitant to lend the government even with the high interest rates environment with demand skewed on short term papers.
- •Investors have continuously preferred the short term 91-day paper which was oversubscribed by a record 371.5 per cent albeit lower than the 645.3 per cent recorded in the previous week.
- •Of the KSh 4 billion on offer, KSh 14.9 billion worth of bids were received in this tranche, with CBK accepting KSh 13.6 billion.
- •The 182-day paper saw its undersubscription edge higher to 84.7 per cent, receiving bids worth KSh 8.5 billion.
The government received bids worth KSh 24.4 billion against the KSh 24 billion on offer, translating to a 101.7% mild oversubscription, during this week’s auction. The CBK accepted bids worth KSh 23.01 billion, a 94.3 percent acceptance rate.
Further, the longer dated 364-day paper was substantially undersubscribed, receiving bids worth KSh 1.1 billion, against the KSh 10 billion offered.
Rates on the three papers trailed above the 16.00% mark, however, yields on the 91-day and 182-day papers fell by 1 basis point to 15.99 percent and 16.85 percent respectively. Additionally, the 364- day paper saw the average accepted yields fall slightly 0.1 basis points to 16.92 percent.
This points to investors hedging against duration risk while adopting a wait and see attitude regarding the bond market rates trend. Additionally, the notorious under subscription in the bond market underpins investors’ demand for higher yields to maximize their real returns with treasury keen on avoiding locking in higher debt costs. This follows a series of recently issued bonds in June and July missing targets by more than half.
The lingering high interest rates on treasury bills experienced for months on the back of the apex bank maintaining a higher for longer stance with the current Central Bank Rate at 13.0%.
However, with the cooling inflation, partly as an effect of CBK’s hawkish stance, investors pencil an easing in the Central Bank Rate with the Monetary Policy Committee convening on 6th August 2024.
Fresh inflation data which partly acts as a gauge for the CBK monetary policy stances, reflected a further easing to 4.3 per cent in the month of July.
