91-day bill slide triggers long bond issues

The 91-day Treasury bill slipped into single-digit rate for the first time since June, as yields on most securities trended south emboldening the Treasury to restart issuing long-term bonds after a nearly six-month pause.

In the latest auction, the 91-day Treasury bill stood at 9.654 per cent, down 4.109 percentage points from the previous auction. The average rate in June was 8.26 per cent for the same paper but this rose in July to an average of 10.57 per cent before peaking at 22.5 per cent last month.

Data from the Central Bank of Kenya (CBK) show that the subscription was Sh22.85 billion, but the Treasury only took up Sh8.37 billion — higher than the Sh6 billion it had earlier said it was looking for.

“The total number of bids received was 301 amounting to Sh22.85 billion, representing a subscription of 380.81 per cent,” said the CBK in a statement.

Encouraged by the falling rates on government paper, the Treasury is now seeking Sh20 billion through a five-year bond that is likely to save the State from expensive debt. It is the first time it is issuing such a bond since June when a similar one was auctioned at 13.193 per cent coupon rate. The Treasury has since then been issuing only one-year bonds.

Analysts said there was pressure ranging from the CBK, politicians and the market for the interest rates to come down.

“I think there is a lot of pressure coming from various sources. The market is very liquid so banks have to bid low and we are seeing this from the high subscriptions. The CBK is persuading them to lower the rates. The deputy president has also lately put more pressure,” said Eric Munywoki, head of research and business development at Sterling Capital.

Among the other factors pushing down interest rates is the recent external borrowing by the Treasury of Sh60 billion — the first tranche of the Sh77 billion ($750 million) syndicated loan from several international commercial banks.

However, Mr Munywoki said there is a chance for the interest rates to go up again when the Treasury goes back to borrowing heavily from the domestic market in line with its programme for the fiscal year.

“Between now and January you are likely to see the rates on government paper coming down to between eight and nine per cent, but this trend could reverse when the government goes back to the domestic market in a big way,” he said.

Last Thursday, CBK governor Patrick Njoroge told parliamentary Finance Committee that he was looking to seeing lending rates coming down in a matter of a month.

“I am confident that we will execute a soft landing of interest rates the one set of rates that are now pending as they are still up there are commercial rates. So I am expressing that optimism — that confidence that commercial bank rates will fall soon and what do I mean by soon. I am talking of, in the context of the month,” Dr Njoroge told the committee.

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