High domestic debt maturities are forcing the Treasury to accept a larger volume of bids in the short term securities auctions as interest rates head for the floor.
This month, investors have offered a total of Sh50.4 billion for the three tenors of Treasury bills against the advertised Sh32 billion, with the government taking up 93 per cent or Sh47 billion.
The accepted bids translated to just Sh6.7 billion in new borrowing with Sh40.28 billion funding maturities or rolled-over debt.
Banks, which are now operating under a regime of interest rate cap, have driven most of the supply of the funding for government securities since the start of September, which has led to a drop in the rates on the papers by between 0.84 and 1.643 percentage points over the period.
Over the past two weeks however, rates have hit a floor at 7.7 per cent for the 91-day paper and 10.3 per cent for both the 182 and 364-day offers.
“On the government demand side, we expect short-term offers and uptake to remain elevated due to roll-over of existing short-term debt – over the last year T-Bills contribution of total government gilt borrowings has risen to above 34 per cent,” said Standard Investment Bank in a note on government securities.
“We see no immediate pressure on short-term rates as we expect asset re-allocation across the banking sector to be gradual – in the medium-term banks increase in government paper holding will be tied to loan repayments and not deployment of new liabilities – we see banks being less aggressive in deposit mobilisation due to set minimum interest rates.”
The most popular paper for investors this month was the 182-day T-bill, attracting total bids of Sh26 billion against an offer of Sh12 billion with Sh23.2 billion accepted.
On the Sh12 billion 364-day T-bill, investors have offered Sh13.8 billion, of which Sh13.3 billion was taken up by the government. This tenor of T-Bill has accounted for the bulk of the maturing debt so far this month, at Sh20.4 billion.
The Sh8 billion on offer on the 91-day T-bill attracted bids worth Sh10.7 billion, of which 98 per cent or Sh10.5 billion was accepted.
In total, analysts at Kestrel calculated that the total maturities for the fiscal year will amount to Sh803 billion, factoring in the securities already auctioned by the end of September. In 2015/16, maturities amounted to Sh695 billion.
During the first fiscal quarter of 2016/17, Sh238.2 billion worth of government securities had matured, against Sh313.14 billion in accepted bids from new auctions.
In terms of longer term debt, the Treasury is also enjoying lower rates. It is currently selling a Sh30 billion, 15-year infrastructure bond at a coupon rate of 12 per cent, which is 0.5 percentage points lower than the previous infrastructure bond issued in May.
Credit: Business Daily