Investors in short-term government securities known as Treasury bills have rekindled their interest in the 91-day paper, bucking the trend of recent auctions which saw most bids placed on the longer dated 364-day paper.
Bids on the 91-day paper surpassed placements on the 364-day paper for the first time in six auctions last week, totalling Sh17.9 billion against Sh11.6 billion for the longer-dated paper.
In the prior week, bids on the longer-dated paper were nearly twice greater than the 91-day paper at Sh16 billion compared to Sh4.5 billion for the latter.
Investors have been rushing to 364-day papers to lock in higher yields for longer as domestic interest rates continue to fall.
Yields on all three Treasury bills- the 91-day, 182 and 364-day papers have continued to decline following cuts to the benchmark interest rate by the Central Bank of Kenya (CBK).
Returns on the 91-day paper have, for instance, dropped for 32 consecutive weeks, settling at 8.9369 percent last week from 16 percent on July 17 last year. Yields on the 182-day paper have meanwhile dropped from 16.8506 percent to 9.2396 percent over the same period.
The return on the longer-dated 364-day paper has meanwhile dropped from 16.9212 percent to 10.5001 percent.
The CBK cut its benchmark rate for the fourth straight time in February, bringing the Central Bank Rate (CBR) to 10.75 percent from 11.25 percent.
The benchmark has overall dropped from 13 percent at the start of last August, with the fall providing impetus for lower domestic interest rates.
Investors in government securities had been widely expected to shift their interest to longer-term papers to lock in rates for an extended period.
The investors tend to concentrate bids on longer-dated issues in a falling interest rate environment to lock in the relatively higher yields for longer in the expectation that future yields will be lower.
In the inverse- a rising interest rate environment will see investors buy shorter term papers to avoid duration risks, which would see them lose out on higher yields from future issuances as they lock funds away in lower-yielding securities.
Lower inflation and a stable exchange rate have incentivised the CBK to cut interest rates ending the high-interest rate regime which saw T-bill returns peak at 16.9899 percent for the 364-day paper in March last year.
