Demand for Treasury bills and bonds has surged in the weekly auctions as commercial banks shift to the securities following the signing of a law capping interest rates.
The banks are seeking to cash in on the current yields before they fall to make up for low returns expected after interest rate charges were limited to no more than four percentage points above the Central Bank rate.
Besides, Treasury bills and bonds are safer options for the financial institutions as the government’s repayment of the debt is assured unlike lending to individuals or business organisations.
In last week’s auction, the Central Bank of Kenya (CBK) said it offered 91-day Treasury bills worth US$39 million.
The total number of bids received was 191 amounting to 109 million dollars, representing a subscription rate of over 274 percent. The total bids accepted amounted to US$45 million.
However, the surge in demand saw the 91-day bill yields go down with the weighted average of accepted bids standing at 8.1 percent, down from 8.3 percent in the previous auction.
Similarly, the CBK put on sale 182 and 364-day bills worth US$59 million each and received overwhelming demand.
According to CBK, banks have raised their hold on domestic debt, which stands at over 18 billion dollars, from 54.1 percent to about 55 percent in the last two weeks, a period the Banking Act (Amendment) Act 2015 has been in existence.
“Banks are working hard to ensure the new law does not hurt their profits. Treasury bills and bonds present them this opportunity. Expect subscription on the securities to increase in coming weeks even as yields drop,” said Henry Wandera, an economics lecturer in Nairobi.
The government is expected to borrow more this financial year for budgetary support with domestic borrowing expected to hit US$2.3 billion.