The Trends in the Performance of Treasury Bills in 2016

By Juma Fred / January 6, 2017



Kenyan Markets KES

During the first half of the year in 2016, yields on T-bills were on a downward trend with the 91, 182 and 364-day papers declining by 330 bps, 130 bps, and 170 bps respectively, to 7.1, 9.8 and 11.1 percent from 10.4, 11.1 and 12.8 percent in December 2015, respectively.

The decline in yields was as a result of high liquidity in the money markets, especially in the second quarter, highlighted by the interbank rate declining to 2.2 percent in early June 2016 from 7.5 percent at the beginning of the year.

Yields on government securities have remained low since and appear to have bottomed out, mainly attributed to:

  1. high preference to risk free government securities especially after the capping of the lending rates also as indicated by the reduced lending to the private sector.
  2. reduced pressure from the government borrowing program as they are currently ahead of the pro-rated domestic borrowing target of 119.2 billion shillings, having borrowed 172.2 billion shillings, which is 144.4 percent of the pro-rated target.

The government is in the process of revising its domestic borrowing target upwards to 294.6 billion shillings from 229.6 billion shillings, which if passed by Parliament, will take the pro-rated borrowing target to 153.0 billion shillings, meaning that the government will still be ahead of the borrowing target.

Despite the stable interest rate environment, there was increased activity in the secondary bonds market as local institutional investors opted out of the equities market, causing bond turnover at the NSE to rise by 39.4 percent to 428.3 billion shillings in 2016 from 307.2 billion shillings in 2015. Based on the yield curve movement and the FTSE Bond Index, the average bond portfolios have made a capital loss of 0.2% over the year.

During the first half of the year, the money markets were characterized by:

  1. high liquidity, which was skewed towards the larger banks as a result of flight to safety following the closure of Chase Bank.
  2. Central Bank of Kenya (CBK) actively participating in the money market through reverse repos in a bid to support small banks, by ensuring liquidity distribution in the interbank market. This was evidenced by:
  1. the decline in average interbank rate from 8.7 percent in H1’2015 to 4.4 percent in H1’2016.
  2. the oversubscription in government securities.

Yields on the 5-year and 10-year Eurobonds that were issued in 2014, started the year at 7.7 percent and 8.9 percent respectively, hitting their peaks in mid-January, following allegations on the mismanagement of the Eurobond funds, coupled with political instability following the disagreement between the government and opposition over the reconstitution of the electoral body –  IEBC, which culminated in the commissioners leaving office. Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 4.1 percent points and 1.9 percent points, respectively, for the 5-year and 10-year bond on account of improving macroeconomic conditions and improved investment outlook of Kenya as a good investment destination.

Related: Real Estate Sustains High Returns in 2016 [REPORT]



About Juma Fred

Juma Fredrick is an enthusiastic journalist who believes that journalism has power to change the world either negatively or positively depending on how one uses it. You can reach him on: (020) 528 0222 or Email: [email protected]

View other posts by Juma Fred


More Articles From This Author







Other Related Articles








SOKO DIRECTORY & FINANCIAL GUIDE

ARCHIVES

2018
  • January 2018 (291)
  • February 2018 (220)
  • March 2018 (279)
  • April 2018 (226)
  • May 2018 (240)
  • June 2018 (146)
  • 2017
  • January 2017 (183)
  • February 2017 (195)
  • March 2017 (207)
  • April 2017 (104)
  • May 2017 (169)
  • June 2017 (206)
  • July 2017 (190)
  • August 2017 (196)
  • September 2017 (186)
  • October 2017 (236)
  • November 2017 (253)
  • December 2017 (266)
  • 2016
  • January 2016 (167)
  • February 2016 (165)
  • March 2016 (190)
  • April 2016 (143)
  • May 2016 (246)
  • June 2016 (183)
  • July 2016 (271)
  • August 2016 (250)
  • September 2016 (234)
  • October 2016 (191)
  • November 2016 (243)
  • December 2016 (154)
  • 2015
  • January 2015 (1)
  • February 2015 (4)
  • March 2015 (166)
  • April 2015 (109)
  • May 2015 (117)
  • June 2015 (121)
  • July 2015 (150)
  • August 2015 (157)
  • September 2015 (189)
  • October 2015 (171)
  • November 2015 (174)
  • December 2015 (208)
  • 2014
  • March 2014 (2)
  • 2013
  • March 2013 (10)
  • June 2013 (1)
  • 2012
  • March 2012 (7)
  • April 2012 (15)
  • May 2012 (1)
  • July 2012 (1)
  • August 2012 (4)
  • October 2012 (2)
  • November 2012 (2)
  • December 2012 (1)
  • 2011
    2010
    2009
    2008
    2007
    2006
    2005
    2004
    2003
    2002
    2001
    2000
    1999
    1998
    1997
    1996
    1995
    1994
    1993
    1992
    1991
    1990
    1989
    1988
    1987
    1986
    1985
    1984
    1983
    1982
    1981
    1980
    1979
    1978
    1977
    1976
    1975
    1974
    1973
    1972
    1971
    1970
    1969
    1968
    1967
    1966
    1965
    1964
    1963
    1962
    1961
    1960
    1959
    1958
    1957
    1956
    1955
    1954
    1953
    1952
    1951
    1950