Investor demand for Treasury bills surged in the weekly auction, recording the steepest oversubscription rate in 2024.
- •All papers were substantially oversubscribed with investors rushing to lock in higher returns as CBK continues the easing cycle.
- •In this week’s auction, the Central Bank of Kenya (CBK) received bids worth KSh73.04 billion against the KSh24 billion on offer – a 304.3% oversubscription.
- •The CBK accepted KShs 31.16 billion – 42.7% acceptance rate – with the apex bank rejecting expensive bids aiming at lowering borrowing costs.
Demand remained skewed to the shorter term 91-day paper as investors continue to assess possible duration risks. However, with the downward trend on the yields, the dynamics might change towards longer dated papers.
The 91-day paper attracted bids worth KSh18.5 billion against the KSh4 billion on offer. The 182-day and 364-day papers received bids worth KSh28.9 billion and KSh25.7 billion respectively against the KSh10 billion on offer in the tenors.
Yields on all the tenors declined, extending the downward trend that set in after the CBK began the easing cycle in August. Yields on treasury bills typically decline ahead of expected interest rate cuts and drop further after rate cuts.
The accepted average yields fell below the 16.35% mark coming in at 14.99% for the 91-day paper, 16.095% on the 182-day paper and 16.34% on the 364-day paper. Compared to the last week of July, the 91-day, 182-day and 364-day papers saw 6.3%, 4.5% and 3.4% declines respectively.
“Discount rates have been on a moderate decline across all tenors over the past month, allowing for lower cost of public debt while minimizing refinancing and liquidity pressures,” noted Ronny Chokaa, an economist and investment analyst.
Yields on the longer dated 364-day paper fell slower than yields on the 91-day paper mirroring a yield curve normalization in the medium term. The bid-to-cover ratios similarly recovered with investors keen on maximizing their real yields.
Even with the reduced Central Bank Rate (CBR), the high fiscal needs by the government is likely to slow down efforts by CBK to push rates lower in an attempt to lessen borrowing costs.
The CBK has cut rates by a total of 100 basis points in the last two monetary policy meetings on the back of easing inflation and a slowdown in economic activity. Inflation is well contained closer to the lower bound target, with September numbers slowing down to 3.6%.