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Investors’ T-bill profit lowest in over 5 years



Capital Markets

Investors’ T-bill profit lowest in over 5 years

An investor at the Nairobi bourse. FILE PHOTO | NMG 

Interest on short-term treasuries has dipped to nearly five-and-a-half-year low on high liquidity, reducing the debt repayment burden but hitting investors hard.

Average yields on the three-month Treasury bills fell to 6.96 per cent last week, the lowest return investors — banks, insurers and pension funds — will have earned for lending cash to the government since July 29, 2013 when they averaged 6.29 per cent.

Central Bank of Kenya (CBK), the government’s fiscal agent, also sold six-month and one-year T-bills for an average of 8.38 and 9.49 per cent to investors respectively, marking the lowest interest since late July 2013.

“Liquidity in the money markets remained high last week. As a result, the yields on Treasury Bills continued to decline for the eighth week in 2019 with the average yield on the 91-day Treasury bill falling below seven percent,” analysts at one the largest fund manager by market share, Sanlam Investments, wrote in this week’s market report.

“The high liquidity is attributable to low private sector credit growth and the continued preference of banks towards Treasury bills and bonds.”

The scramble for government securities, largely commercial banks, point to a worrying trend where the Treasury continues to be the largest beneficiary of the September 2016 legal ceilings on loan charges at the expense of small- and medium-sized enterprises.

Domestic debt repayments are a major burden to taxpayers, with Treasury secretary Henry Rotich having budgeted for Sh505.86 billion in the current financial year, an equivalent of 58.10 per cent of the Sh870.62 billion total debt obligations.

The CBK has rejected nearly a third, or Sh91.54 billion, of the Sh326.69 billion worth of bids placed by investors since the year started, helping push down the yields.

Overall, the top bank has accepted Sh235.15 billion year-to-date but this translates to a net borrowing of Sh56.11 billion because of Sh179.04 billion maturities in period.

“Most banks traditionally hold huge cash reserve towards the end of the year, and that has been boosting T-bills auction… at the expense of private sector credit growth,” Churchill Ogutu, a research analyst at Genghis Capital, said on February 15.

Loans held by private firms rose a paltry 4.4 per cent to Sh2.42 trillion last November, latest CBK data shows, the highest growth since November 2016 following the on-set of legal ceilings on loan charges at four percentage points above the Central Bank Rate.