The government was able to raise only Sh2.2 billion out of the targeted Sh16 billion in primary Treasury bill auctions last week as investors kept off the market following the Christmas break.
Central Bank of Kenya (CBK) said the auction of the one-year T-bill was cancelled, even though it did not offer further explanation.
Treasury bill auctions can be cancelled when investors fail to bid or when they demand yields that the government considers too high. Going by the performance of the 91 and 182-day offers, whose subscription levels stood at 34 and 17 per cent respectively, the decision to forego the one-year offer is likely to have arisen out of a lack of bids.
“The market is quiet in the last days before year end as most investors are out of the market. The (Sh6 billion) 182 day T-Bill came off to 10.47 per cent from 10.49 per cent last week on under-subscription of 83 per cent, with only Sh2 billion in bids.
“The 364-day auction was cancelled with the regulator not giving reasons as to the cancellation,” said Genghis Capital in a fixed income note.
On the three-month offer that targeted Sh4 billion, the Treasury accepted only Sh1.1 billion out of bids of Sh1.37 billion. The accepted bids on the 182-day paper stood at Sh1.14 billion.
In the previous week’s auction, the government had managed to raise its entire target of Sh16 billion, after receiving heavy bids on the six-month paper to the tune of Sh15.8 billion.
Investors have tended to favour the six month paper over the one-year whenever there is uncertainty over the direction of interest rates, as is the case currently due to the prospects of US federal rate hikes in the short to medium term.
The yields on the short-term debt seem to have flattened out in recent weeks after being on the rise through November.
“We expect rates to persist at the current levels, having risen slightly over the last few months. It is due to this that we think it is prudent for investors to be biased towards short-term fixed income instruments given the prevailing interest rates environment,” said Cytonn Investments.
Investors also shied away from the equities market last week, with turnover falling below the previous week’s level and the average for the month of December in general.
On Wednesday and Thursday, they traded Sh294 million and Sh262 million worth of shares respectively, compared to a daily average of Sh393 million in the previous three weeks.
Other than investors staying away from the market, liquidity has also tightened in the past few days with the interbank rate rising to 8.7 per cent from 4.3 per cent two weeks ago.