There was a general uptick in yields for government paper last week, even as Treasury Bills were undersubscribed at 82.8 per cent compared to 102.1 per cent the previous week.

Central Bank of Kenya (CBK) data says the highest subscription rate was recorded by the 364-day paper, receiving bids worth Sh9.7 billion against the offered Sh10 billion, translating to a subscription rate of 96.6 per cent.

CBK’s latest auction results show that the government was lukewarm on bids, having accepted bids worth Sh18.8 billion, out of Sh19.9 billion last week.

Liquidity and availability

“The general trend in yields for government paper is upwards. A temporary reduction in yields for lower endpaper, amidst this general trend, is a mismatch between liquidity and availability. This can be due to a rush of liquidity into the markets or by the CBK snubbing expensive bids,” said Mihr Thakar an investments analyst.

Speaking to Business Hub yesterday, Ken Ouko investment coach at Ken’s MoneyMatters termed the dip in the government’s short term securities as false, saying it is likely driven by a surge in commodity prices and lack of adequate liquidity in the market.

“Investors are becoming more careful with their money, it’s not something that will go on for a long time. So it’s something that will settle within a very short period because people will realize that these things have always been there and government securities actually the safest place to be,” Ouko said.

He said that the fact that bonds have higher interest rates of up to 13.9 per cent, coupled with the incentives to invest in them, then they will continue to perform well compared to T-Bills.

Tame shilling’s volatility

On whether the recently approved World Bank loan facility of Sh80.9 billion to accelerate Kenya’s recovery from the Covid-19 will affect the performance of the local securities market, Thakar said the external debt will help government repay expensive foreign debt and tame volatility of the shilling.

“CBK had 4.9 months of import cover before the infusion, which is above the East African Community convergence criterion of 4.5 months. Foreign debt inflows are budgeted and do not affect domestic debt appetite,” he said.