- Bonds traded during the week under review brought in Sh5.79 billion compared to Sh12.77 billion.
- Last week, Market research firm EFG Hermes released a study that predicted a bleak future for government securities
Demand for Kenya's Treasury bonds and Bills is down after the repeal of interest cap law as banks shift focus to commercial lending for maximum yields in the loan market.
The Central Bank of Kenya Weekly Bulletin shows that low bond demand saw the turnover of bonds traded in the domestic secondary market drop by 54.6 per cent during the week ending December 5.
Bonds traded during the week under review brought in Sh5.79 billion compared to Sh12.77 billion the previous week.
Bids worth Sh8.1 billion were received from Sh21.6 billion advertised, representing a subscription rate of 38 per cent. The bond attracted a yield of 12.28 per cent.
The same scenario was witnessed in the Treasury Bills segment despite the government rising yields in the past one month.
The 182- Day Treasury Bills was the worst hit with a bid worth Sh3 billion received from Sh10 billion advertised. This was despite yields rising from 7.2 per cent early last month to current 8.2 per cent.
81- Day and 364- Day Bills however received over 50 per cent subscription during the week under review. Their yields have also been increased to 7.1 from 6.3 and 9.7 to 9.8 per cent respectively.
Commercial banks focused their investment in government securities after the passage of interest cap law that limited lending rates at four per cent above Central Bank Rate (CBR), ditching loans market.
This significantly hurt lending to the private sector, which dropped to a low of 2.4 per cent. The trend is expected to be reversed after the law was scrapped early last month.
Last week, Market research firm EFG Hermes released a study that predicted a bleak future for government securities.
According to EFG Hermes, banks increasingly parked their liquidity in Treasuries as they scaled back lending to the private sector. Such increased demand sent Treasury yields tumbling, despite policy rates remaining largely stable.
It added that now, as trends are set to reverse, with a pick-up in credit growth, an upward pressure on Treasury yields is expected to emerge as banks’ demand for the instruments drops.
''Indeed, we have seen in the latest auctions lower subscription levels in Treasury auctions just before and since the rate-cap repeal decision with yields on the rise, despite the latest cut in the policy rate,’’ the report said.
''We, therefore, see the gov’t facing elevated, if not rising, borrowing costs in the coming period, adding more pressure on fiscal balances, which have been challenged in recent years by poor revenue collection.’’.