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- Investors showed a clear preference for shorter-term Treasury Bills over longer-term Treasury Bonds
- The Treasury Bills auction witnessed robust participation, with the total amount accepted surpassing the amount offered
- The under-subscription of bonds indicates a cautious investor stance towards long-term commitments amidst economic uncertainties
The Central Bank of Kenya (CBK) has announced the results of its latest Treasury Bonds and Treasury Bills auctions, revealing stark contrasts in market preferences for these debt instruments.
Bonds and bills are both forms of debt instruments issued by governments to raise funds, but they have distinct characteristics and serve different purposes.
The results posted on July 4, showcased a clear investor inclination towards shorter-term securities over longer-term commitments.
Treasury Bonds Tap Sale - Issue No. FXD1/2023/002
The CBK's Treasury Bonds Tap Sale, Issue No. FXD1/2023/002, targeted to raise Sh20 billion.
However, the bond auction significantly underperformed, attracting bids totaling only Sh487.50 million, a mere 2.44% of the advertised amount.
Almost all bids received were accepted, with the total accepted amount at Sh486.48 million.
The high interest rate of 17.1225% for accepted bids and a coupon rate of 16.9723% indicate that investors are seeking substantial returns to mitigate perceived risks.
The under-subscription suggests a cautious investor stance towards long-term commitments amidst economic uncertainties.
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Treasury Bills Auction - Issues 2585/91, 2558/182 & 2512/364
In contrast, the Treasury Bills auction, who results were shared on July 4, witnessed robust participation, with the total amount accepted surpassing the amount offered.
The CBK had offered Sh24 billion across three maturities: 91 days, 182 days, and 364 days.
The total amount accepted was an impressive Sh27.895 billion, highlighting a strong investor preference for short-term instruments.
The oversubscription of treasury bills indicates a high demand for shorter-term investments, with investors favouring the liquidity and lower risk associated with these instruments.
The competitive interest rates for these bills reflect an attractive return, albeit slightly lower than the bond rates, yet still appealing in the current market environment.
James Mutuku, Director of Financial Markets at the CBK, faces the challenge of addressing these market preferences in future auctions.
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The under-subscription of bonds suggests a need for more aggressive marketing or incentives to attract investors to longer-term securities.
Meanwhile, the strong performance of treasury bills highlight the importance of maintaining attractive rates and possibly increasing offerings in this segment to meet investor demand.
The recent auctions by the Central Bank of Kenya provide a clear picture of current market sentiments.
While short-term treasury bills are in high demand, long-term bonds face challenges in attracting investor interest and confidence.