Accra, Ghana

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Sh30bn bond hits demand for T-bills


The demand for short-term government paper remained sub-par last week as investors kept eyes trained firmly on this month’s Sh30 billion bond auction, which closes on Wednesday.

The new issue, a re-opening of previous 10 and 15-year bonds, is also likely to benefit from a more liquid market after the government moved to release Sh77 billion county funds, which have been held up at the Treasury since July.

The 15-year tranche, which effectively has five years to maturity having been first issued in 2008, carries a coupon rate of 12.5 per cent, which is in line with the yield curve for five-year tenor government securities.

“We expect this liquidity to hit the market in the next few days and find its way heavily into the upcoming auction,” said Genghis Capital in a fixed income brief.

Analysts said the market liquidity was also fairly balanced last week—meaning that banks and other institutions were not struggling for cash to participate in the Treasury bill auction, which attracted bids of Sh19.08 billion against a target of Sh24 billion.

Investors are instead looking to lend the government through longer-term bonds.

The last bond auctioned in November—a seven-year Sh30 billion infrastructure bond—attracted bids worth Sh45.9 billion, although its tax-free status also helped in boosting investor appetite.

In contrast to the enthusiasm shown for the bond, T-Bill auction results for last week returned a 79.48 per cent performance, with rates also largely flat.

Yields on the 182-day and 364-day T-bills edged up 4.4 basis points and 3.1 basis points respectively to 10.52 and 11.07 per cent, while the rate on the shorter 91-day paper was flat at 8.01 per cent.

The government is therefore likely to come under pressure to offer higher rates if it is to close the budget deficit of Sh691 billion.

Analysis done by Kestrel capital shows that in the five months to the end of November, the Treasury had made net borrowing of Sh75.1 billion. This represents just 18.3 per cent of the revised domestic borrowing target of Sh410.2 billion.

“Money market liquidity improved, boosted by government payments during the week.  Government payments and redemption of Treasury bills resulted in a liquidity injection of Sh69.6 billion. The impact of these actions on liquidity was however, partly offset by tax remittances of Sh16.3 billion, issuances of government securities worth Sh17.3 billion and net Reverse Repo maturities of Sh6.7 billion,” said Central Bank of Kenya (CBK) in a weekly statistical brief.

Credit: Business Daily

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