Investors splash Sh140bn on Treasury bills in Jan

Investors have this month offered the government a massive Sh139.3 billion bids for Treasury bills, giving the Treasury an opportunity to close the domestic borrowing target deficit.

Central Bank of Kenya (CBK) data shows in the first week of the month, bids stood at Sh33.02 billion, rising to Sh67.6 billion in the second week and Sh38.7 billion last week.

The oversubscription is a result of a liquid market, analysts say, ironically due to heavy maturities of the same securities. This, therefore, means that most of the bids have come from investors looking to roll over maturing debt.

The government has accepted a total of Sh93.9 billion out of the Sh139.3 billion (rejecting Sh45 billion) offered in the three auctions. This coupled with maturities of Sh63.6 billion translates to Sh30 billion in new borrowing from T-bills in January alone.

Total T-bill maturities for January stand at Sh83.5 billion.

“The heavy liquidity (has) propelled demand for T-bills as the market sought channels to warehouse this float,” said Commercial Bank of Africa in a fixed income note.

High liquidity had pushed the interbank rate to a low of 1.7 per cent in the week ending January 11 but due to a CBK mop-up some liquidity was drawn out of the market pushing it up to 3.07 percent at the end of last week.

The heavy interest in the paper is welcome news for the Treasury, which has indicated in the 2019 draft Budget Policy Statement (BPS) that it hopes to borrow a net of Sh310 billion from the domestic market in the current fiscal year.

The BPS stated that it had by the end of November borrowed a net of Sh139.4 billion locally and Sh77.1 billion externally, in order to finance the budget deficit projected at Sh635.5 billion –6.3 per cent of GDP– this fiscal year.

Domestic borrowing also includes the overdraft from the CBK and advances from commercial banks.

Attention now turns to this month’s Sh40 billion Treasury bond offer, whose sale closes tomorrow.

The bond is being sold in two tranches of two and 15-years, with the shorter tranche meant to satisfy pent up demand for short duration bonds that have been absent from the primary market in recent months.

Analysts at Kingdom Securities expect that there will be moderate demand for the 15-year tranche and a healthy subscription for the two-year, with rates falling at 12.6 to 12.85 percent and 10.6 to 11 percent respectively for the two papers.