Bonds undersubscribed due to low yields

BondsGovernment securities were last week rather badly under-subscribed as yields continued on a downward slide ahead of the closure of this week’s two-year bond.

The 91 and 182 Treasury Bill auctions which needed a combined KSh. 7 billion could only garner bids amounting to KSh. 1.5 billion, which represented a 21.43 per cent performance rate.

The pathetic performance comes just at the time when the Treasury has entered the market to seek KSh. 15 billion through the sale of a two-year bond with market-determined interest rate.

The sale of the bond closes on Tuesday and analysts have varied opinions about how investors would be bidding for the bond in view of the falling yields and the fact that investors have been shunning government securities.

In a research note released last week, analysts at NIC Securities said that the Central Bank of Kenya (CBK) has been seeking lower rates by rejecting aggressive bids after a drop in the rate of price-rise of basic goods and services.

They added that the market is adequately liquid and the success of the issue is more or less guaranteed and, after CBK’s rejection of most bids in last month’s auction, bidding could be fairly conservative.

In the last week of November, CBK rejected 75 per cent of bids for a 20-year bond whose auction received bids totalling KSh. 12.72 billion, having been oversubscribed by six per cent, and only KSh. 3.17 billion or 24.96 per cent of the bids were accepted.

When investors indulged in aggressive bidding, which was way above the rate at which the Central Bank was willing to pay, their bids were rejected.

In a research note, the analysts at Apex Africa Capital said that the Central Bank had planned to sell about KSh. 15 billion of the two-year bond this month and aggressive bidding, especially from institutional players, would be expected.

Last week, the 91-day Treasury Bill auction, which was looking for KSh. 4 billion, could attract only KSh. 563.27 million; while the 182-day Treasury Bill auction which was in the quest for KSh. 3 billion could only attract bids worth KSh. 937.06 million.

The yield on the 91-day Treasury Bills came down to 8.174 per cent while the yield on the 182-day Treasury Bills dropped to 9.021 per cent. The Central Bank rate is, at present, 11 per cent while inflation in November dropped to 3.3 per cent from 4.1 per cent in October.

Analysts at Stanlib, a local fund manager, maintain that heavy liquidity from maturities of government securities expected in the first half of 2013 may maintain rates at high single digit levels while inflation levels could remain relatively steady.

Image courtesy: FreeDigitalPhotos.net

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