Muted T-bills uptake as investors eye premium fetching 2-year bond

Investor appetite for Treasury bills remained relatively muted last week as attention remained firmly on the sale of the two-year bond which is tipped to offer between 12.5 and 13 per cent rate.

The three tenors of Treasury bills—91, 182 and 364-day— fetched bids worth Sh17 billion against the Sh16 billion that the Treasury was seeking, even as rates continued to go up with the one-year paper hitting the 11 per cent mark.

The three-month paper had the lowest participation of the three at just 54 per cent as it took in bids worth Sh2.2 billion against the Sh4 billion on offer, with the interest rate standing at 8.36 per cent.

Investors bid Sh7.3 billion and Sh7.5 billion for the 182- day and 364-day T-bills, with the government accepting a total of Sh12.2 billion from the offers.

In contrast to December, the T-bill market was vibrant last month, with overall subscriptions at 121.7 per cent.

Analysts say the two-year bond is likely to match the recent average for that tenor of 12.3 per cent, which would offer investors an attractive premium on the prevailing T-bill rates.

“Market sentiment on the two-year bond yield is tilted between 12.5 and 13 per cent…the two year historical average yield on the two year tenors has been 12.3 per cent, and therefore an over-subscription is expected,” said Genghis Capital in a note on the bond.

“The new issue may have been prompted by the CBK to allow investors roll over their short-term maturities. As such expect a slowdown in the secondary market as the primary auction occupies centre stage with elevated activity on the short end of the yield curve.”

This month, the total government debt maturities stand at Sh85.7 billion, according to calculations done by Kestrel Capital, with a significant portion of that coming in the third week due to maturing of Sh30 billion worth of Treasury bond.

Last month, the Treasury’s Sh30 billion 15- and 20-year bonds issue was undersubscribed by 23.9 per cent as liquidity in the market tightened.

Investors also took the view that the rates of 13.6 and 14.3 per cent for the 15- and 20-year paper respectively were not as attractive compared to returns on previous offers of the same tenor.

The November bond was the first undersubscribed issue in 2016, and was seen as a surprise given that returns from other investments like equities have been underwhelming.

The bonds market has proved a success for the government this year—accepting Sh301.1 billion since January against a target of Sh305 billion in primary auctions (excluding tap sales), while the bids by investors have totalled Sh468 billion.azw