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Increasing demand for government paper signals increased confidence in the market despite projections of a slowdown ahead of the August polls.

For the second week running Treasury Bills (T-bills) remained oversubscribed, with the overall spike at 116.3 per cent compared to 102.3 per cent recorded the previous week.

“The Treasury bill auction of May 19 received bids totalling Sh27.9 billion against an advertised amount of Sh24 billion, representing a performance of 116.3 per cent. Interest rates remained stable, with the 91-day, 182-day and 364-day Treasury bill rates increasing marginally” said the Central Bank of Kenya (CBK) in a statement.

Increased yields

The improved performance comes on the back of increasing yields and eased liquidity in the money market with the average interbank rates declining to 4.4 per cent, from the 4.6 per cent recorded the previous week.

According to CBK, the 91-day paper recorded the highest subscription rate, receiving bids worth Sh5.3 billion against Sh4 billion which was on offer, translating to a subscription rate of 136.9 per cent, a marginal increase from the 132 per cent points recorded the previous week.

Interest rates on short-term government debt securities continued to rise marginally in the latest auction, signalling higher returns for investors in the fixed-income instruments.

The continued investor preference for the 91-day paper is partly attributable to the higher return on a risk-adjusted basis.

The long term securities also recorded improved yields with the subscription rates for the 364-day and 182-day papers increasing to 121.8 per cent and 102.5 per cent.

Ken Ouko of Ken’s Money Matters said that the sudden appetite for government securities has increased since the stocks are more volatile now.

“The yields on the government papers were on an upward trajectory, with the yields on the 364-day, 182-day and the 91-day papers increasing by 1.9 points, 11 points and 7.5 points respectively,” he said.

“Government securities have performed well and will continue that way due to their secure nature investors are now getting to understand this,” said Ouko.

However, he noted that with money markets offering better opportunities to investors, it is likely to drive the market in the short term.