High Liquidity, Better Risk Return Drive Demand for Short Tenor Treasury Bills

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The Central Bank of Kenya (CBK) which represents the exchequer’s primary debt auctioneer has listed two bonds- a re-opened 15 year issue and a new 25 year bond.

Kenya National Treasury building

The Central Bank of Kenya accepted  KSh 60.35 billion out of KSh85.62 billion from its 10- and 20-year Treasury bonds- (FXD 2/2019/10) and (FXD 1/2019/20). CBK rejected expensive bids.

According to Cytonn Investments, the 10-year bond generated more interest, recording total bids of Kshs 70.9 billion out of the Kshs 85.6 billion as investors continued to avoid the longer-tenor bonds due to the relatively flat yield curve on the long-end brought about by the saturation of long-term bonds, coupled with the duration risk associated with long-term papers.

Genghis Capital Analysts further state that, “The FXD 2/2019/10 presents a better risk-return trade-off compared to the longer term papers, with bids in the market ranging between 12.20% – 12.25% while the offers are at 12.00% – 12.10%.”

Comments from Market Analysts

Rates in the fixed income market have remained relatively stable as the government rejects expensive bids, being currently 27.0% ahead of its domestic borrowing target for the current financial year, having borrowed Kshs 318.0 bn against a pro-rated target of Kshs 250.5billion. – Cytonn Investments.


The continued search for yield has favored market play between seven and ten-year papers. While short term papers remain compelling amid uncertainty especially surrounding the existence of the interest rate cap, the low yield has pushed banks to take on longer investments but mostly for trading purposes.

Given the prevailing liquidity conditions, the government should be able to fund the gap without altering interest rate expectations. A total of KES 353.13Bn in outstanding maturities to June 2019 coupled with increased government spending should bolster overall liquidity and therefore, the performance on auctions. Yields should remain subdue despite rising inflation expectations. – Stephanie Kimani, CBA Research Analyst.

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