The Central Bank of Kenya (CBK) disclosed the acceptance of Sh8.9 billion of submitted bids yesterday of which Sh4.9 billion represented competitive bids.
Despite the reduced demand for the Treasury bills, average interest rates of accepted bids edged further up with the return on the shortest-dated 91-day paper for instance rising to 12.352 percent from 12.233 percent previously.
Returns on the 182 and 364-day Treasury bills similarly rose to 12.392 percent and 12.728 percent from 12.322 and 12.708 percent, respectively last week.
The pressure on returns is attributable to investors demanding higher risk-adjusted returns in the face of rising inflation and increased domestic financing requirements on the exchequer.
The fall of interest in the Treasury bill auction has coincided with a higher interbank lending rate, which implies tighter financing conditions between banks on overnight lending facilities.
Secondary data from the CBK shows the interbank lending rate had edged up to 13.52 percent as of Wednesday.
A week ago, CBK indicated liquidity in the money market had decreased as receipts to the government rose faster than government payments in the opposite direction.
Commercial banks, the major participants in the buying of Treasury bills, were short of the 4.25 percent cash reserves requirement by Sh18.2 billion.
Investor bias for the shorter end of the auction continued with the bulk of the reduced bids or Sh7.1 billion being placed on the 91-day paper.
The CBK is expected to reopen the T-bills auction next week as it seeks to cover Sh28.7 billion in rollovers and raise a fresh Sh4.7 billion from the weekly sale.
