Analysis of latest Kenyan T-Bills auction & economic implications

The Central Bank of Kenya recently disclosed the outcomes of its most recent Treasury Bills auction. The auction comprised 91-day, 182-day, and 364-day bills, with a total subscription slightly surpassing the offered amount of Kshs 24,000 million. To delve into these results, CNBC Africa engaged in a conversation with George Munga Amolo, a Financial Analyst and the Managing Partner at AMG Consulting Group. George shed light on several crucial aspects related to Treasury Bills and their implications on the economy. Treasury Bills serve as short-term instruments, spanning from 90 to 180 days, whereas Treasury Bonds are long-term instruments ranging from 180 days up to five years. When the government seeks funds from the market, they set a target amount, let's say 50 to 60 billion Kenyan shillings. Subsequently, commercial banks, individuals, or money managers submit offers. The disparity between the offers received and what the government accepts reflects a crucial difference. For instance, the government might receive 50 billion but only accept 40 billion, based on the demands. George emphasized the significance of weighted average interest rates for accepted bids, which provide a basis for fund managers to anticipate returns from the instruments. The recent auction witnessed a slight increase in interest rates for Treasury Bills, a move influenced by multiple factors and market trends. Despite the rise, George deemed it an attractive period for investments, citing stable fiscal policies driven by optimistic market sentiments. The added confidence in the government's ability to honor its financial obligations bolsters the appeal of Treasury Bills. Furthermore, George pointed out that the tenure of investments plays a crucial role in decision-making. Investors weighing liquidity, risk appetite, and return expectations opt for suitable tenors, be it short-term Treasury Bills or long-term Treasury Bonds. The offer bid ratio above one for all tenors at the recent auction indicates a favorable market response. George discussed the impact of bid to cover ratio on auction outcomes and advised investors to align their tenor selection with their financial goals and risk tolerance. Diving into the dynamics of non-competitive bids, George deliberated on their advantages and limitations compared to competitive bids. While non-competitive bids assure the full allocation of the bid amount, competitive bids entail potential refunds for excess amounts. The upcoming auction scheduled for May 30th poses certain economic factors and external events that could sway demand for Treasury Bills. George highlighted the recent trade agreements between Kenya and the U.S. as a key influencer expected to inject liquidity into the economy. Similarly, impending payments like the 500 million USD Eurobond in June might impact interest rates. Budgetary considerations and government borrowing activities also hold significance in shaping future interest rate trends. George predicted a stabilization or slight decline in interest rates, contingent on factors like deficit size, financing strategies, and the aftermath of recent government agreements. Overall, the forecast remains optimistic, with potential for favorable interest rate scenarios given the prevailing economic conditions and fiscal stability.