Appetite for short term State papers declines


Investors have shifted their appetite to the long-term government credit paper, another sign that the country’s interest rate environment is stabilising.

Wednesday’s five-year bond auction attracted huge interest, with the short term Treasury Bills recording big under subscription.

The government offered Sh20 billion but investors bid Sh32.9 billion.

The change of trend saw the 182-day Treasury Bill return a seven per cent subscription while the one year paper recorded a 19 per cent subscription.

Investors prefer short-term papers in times of interest rate instability, avoiding to lock down their money in long-term bills with unpredictable rate movement.

Treasury accepted Sh30.7 billion at a coupon rate of 13.9 per cent, the highest for government paper this week.

The 91-day T-Bill offered 9.2 per cent interest while the 182-day paper was sold at 10 per cent.

The mid-term instrument comes after the government offered two one-year bonds in September and October to fund the budget deficit.

Kenya has shifted focus to long-term bonds to balance its books, having accumulated a lot of short-term credit.

The deliberate move comes after the Central Bank of Kenya (CBK) Governor Patrick Njoroge earlier in the month told a National Assembly Finance Committee that it would work with the National Treasury to coordinate fiscal and monetary policies.

“They have been picking up debt at very high interest and will have to pay the short-term debt soon, so it will be good for the government to balance their debt portfolio,” an analyst with Sterling Capital Eric Munyoki told the Daily Nation when the five-year bond was offered.

It is, however, not clear whether they would continue targeting long-term investors.

Rates in the market have been subdued by the sentiment that the government is in a comfortable cash position.

It has borrowed Sh105 billion locally for the current fiscal year, compared to a target of about Sh91.3 billion, cooling its appetite and sending rates on a free-fall.

Analysts warned that the rates could swing back when the short-term loans mature, putting pressure on Treasury to finance the debts.

Cyton Investments said in a weekly report that in the month of December alone, total government debt maturities stand at Sh58.0 billion.