The demand for Treasury bills (T-bills) by investors has dried up even as interest rates on the short-dated securities continue to rise, upsetting the Central Bank of Kenya’s (CBK) plan of lowering interest rates on government paper.
Last week’s T-bill auction, which aimed to raise Sh24 billion, only realised Sh7.6 billion in investor bids against Sh14.4 billion in the previous week.
Bids on the short-tenor papers narrowed throughout June, falling from Sh36.2 billion in the first week, and Sh22.7 billion in the second.
Interest rates on the bills have nevertheless continued to soar week on week with the return on the 91-day T-bill edging higher to hit 15.9771 percent.
Rates on the 182-day and 364-day bills have meanwhile hit 16.7636 and 16.7911 percent, respectively.
The market-weighted average interest rate for the 91-day paper pushed above 16 percent in the auction signaling underlying pressures on interest rates despite CBK expectations on the easing of interest rates on government securities.
CBK has continued to reject expensive bids from investors having accepted Sh6 billion from the recent auction despite its underperformance.
Investor apathy on Treasury Bills is expected to put the apex bank under pressure as it seeks to raise at least Sh15.6 billion from this week’s T-bill auction to cover the redemption of previously issued short-term papers.
The balance of Sh8.3 billion is expected to cover new borrowing from T-bills.
High interest rates on T-bills continue to linger in a high for longer interest rate environment which is underpinned by a tight monetary policy with the Central Bank Rate at 13 percent compared to 10.5 percent at the same time last year.
CBK primarily deploys Treasury bills to control the money supply in the economy and balance out short-term liquidity requirements for the State.
