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Investors flee Kenya's debt market as interest rates drop

02 September 2014, 08:27

Nairobi - Investors have fled Kenya's debt market as yields on short-term Treasury bills decline to the lowest level.

Interest rates have declined to an average of 8 percent. In the last auction dated Aug. 28, the yield on 91-day Treasury bill shed off 0.009 points to close the week at 8.2 percent.

Similarly, the 182-day Treasury bill lost 0.09 points to settle at 8.61 percent. Of the two bills, it is the 182-day paper that has been greatly affected, losing 1.5 points since mid July, according to the Central Bank of Kenya (CBK) data received on Monday.

On the other hand, the 91-day bill has lost 0.5 points in the same period. The 364-day has shed off 0.08 points since mid-July to stand at 10.25 points in the auction dated Aug. 28.

The low rates have made investors ditch the debt market in the past weeks, with CBK's offers remaining grossly undersubscribed since the start of August.

Banks, the main buyers of the securities, hence the major lenders to the government, have led in keeping off the market.

In the auction dated Aug. 28, CBK offered for sale 91-day Treasury bills worth 45.5 million U.S. dollars.

The bids received amounted to 12.4 million dollars, which was a subscription of 27.4 percent. CBK accepted bids worth 12 million dollars.

The low subscription was a continuation from the previous week, where CBK offered for sale bids worth 45.5 million dollars and received only 14.2 million dollars.

On the other hand, CBK offered for sale 182-day bills worth 45. 5 million dollars last week. The regulator received bids worth 7.1 million dollars, representing a subscription of 16 percent.

This was a drop from the previous week, when the bank offered for sale bills worth 45.5 million dollars and received bids worth 8.5 million dollars.

The 364-day bill has recorded mixed performance as its yields remain above 10 percent. Last week saw the subscription stand at 112 percent, with CBK receiving bids worth 51 million dollars for the 44.5 million dollars offered.

Analysts note that investors will remain cautious in putting money at the debt market as long as interest rates continue to plummet.

Commercial banks, which mid-August held 53.5 percent of total government debt, have cut it to about 53 percent.

Kenya's total domestic debt currently stands at 14.6 billion dollars, up from 14.1 billion dollars in June.

And as performance of the debt market declines, the stock market has recorded gains, with shareholders' wealth increasing by 125 million last week as market capitalization hit 25.1 billion dollars.

- Xinhua

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