January 18, 2021


We, Deliver

Coronavirus: Investors move funds to National Treasury

Jitters surrounding the coronavirus outbreak has pushed investors into packing more funds in the National Treasury as participants flee the alternative equities market.

Investor subscriptions to the weekly traded Treasury bills (T-bills) topped Ksh.63.4 billion against a Ksh.24 billion target to represent a 264 percent rate of subscription, the highest seen so far in 2020.

Bids to the Central Bank of Kenya (CBK) traded bills have picked up in recent weeks since volatility struck the stock market to see investors favour investments in government debt as capital takes a flight from risk.

At the start of the year, Treasury bills remained overly undersubscribed with the weekly issue valued on January 6 registering a 78.1 percent subscription.

With the allure of a guaranteed return, investors now take refuge in the bond market in a switch further demonstrated in investor subscriptions to the monthly traded Treasury bonds.

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February’s issue made through the reopening of a prior 25 year bond issue and the featuring of a new-15 year issue surprised as it saw investor interest to the tune of Ksh.42.5 billion shillings or an equivalent 85 per cent subscription rate even as the issue factored in long-term risks from its lengthy time to maturity.

The flight to risk is expected to favour the National Treasury in its quest to meet its domestic borrowing targets to June 2020 with gross internal borrowings standing at Ksh.304.8 billion as of January 31 against an end goal of Ksh.514 billion.

The increased appetite for government debt is further expected to drive up demand for new borrowing issues and quell interest payments to investors by the National Treasury correcting the recent uptick on rates to T-bills and bonds.

The CBK has until now fought off aggressive investors by rejecting expensive bids as was the case in February’s bond sale as accepted bids made only for 65.6 per cent of total bidding.

Returns for the 91 day T-bill presently stand at 7.3 per cent while those on the 182 day and 364 day paper stand at 8.1 and 9.1 respectively.

The appetite for future issues under the cloud of volatility is expected to be put to the scale next week as the CBK publishes results off its March bond issue which is to be valued on March 23.

The issue saw the re-opening of a 20-year and 25-year fixed coupon bonds whose time to maturity presently stands at just over 18 and 23.3 years respectively.

The National Treasury and the CBK continue to favour the re-opening of old bonds over new issues as a means to direct proceedings on future interest payments as re-opened bonds offer a guidance on interest rates through the weighted interest rate in the secondary bond market.

Proceeds raised from the bond auctions are set to be utilized in budgetary support.