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Kenyan Treasury Bills Undersubscribed First Time in 10-weeks

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

Kenyan Treasury bills were massively undersubscribed for the first time in 10-weeks as investors held onto their cash due to waning confidence in the market.

The undersubscription signals waning confidence in the market attributable to the Coronavirus outbreak.

Kenya reported its first case of coronavirus in March, sending panic across markets. On Sunday, confirmed positive cases rose to 15.

During the week ending March 20, 2020, the Central Bank of Kenya (CBK) put 91-day, 182-day and 364-day papers for sale as it sought to raise 24 billion shillings.

It received bids totaling KSh 21.1 billion against an advertised amount of KSh 24.0 billion, representing a performance of 87.9 percent. 

the 91-day, 182-day and 364-day paper declined to 13.7%, 36.1% and 169.4% from 201.8%, 92.5% and 460.4%, respectively, the previous week. 

The yields on the 91-day paper and 364-day paper remained unchanged at 7.3% and 9.1%, respectively, while the yield on the 182-day paper declined by 0.1% point to 8.0%, from the 8.1% recorded the previous week.

According to NCBA Research, “The outbreak of coronavirus could aggravate the country’s economic fragilities from fragile domestic demand and fiscal imbalances.”

“So far, investors’ confidence is fragile. As a result, demand for sovereign risk has accelerated as risk aversion feed preference for liquidity. The stampede for government papers has seen yields ease across T-bills despite rising inflation and inflation expectations.”

On the other hand, Cytonn Investments expects the yields on government securities to remain stable despite the expected cut on the CBR, with a bias to an upward readjustment in the yield curve.

“We believe that in the absence of credit risk, the main feature associated with Government-issued securities, the value of the cash flows accrued to such investors becomes a function of their required return based on inflation expectations which present a risk of effectively eroding the purchasing power of such securities future cash flows. With the expectations of heightened inflationary pressures, we believe that investors will continue demanding higher yields to compensate for the inflation risk,” says Cytonn Investments in its Potential Effects COVID-19 on Money Market Funds note.

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