Investors snub Treasury bonds over interest rate risks

Investors in government debt are shying away from taking Treasury bonds as interest rate risks weigh on the uptake of the longer dated papers.

Yields on government securities have been treading upwards as the price of bonds falls in tandem exposing investors in government debt to potentially lower returns should they choose to dispose of their Treasury holdings before maturity.

As such, recent Treasury bond issues have performed below par as investors move funds elsewhere.

May bonds auction for instance posted a 71.9 per cent performance rate by attracting bids of just Ksh.43.1 billion against a target of Ksh.60 billion.

The 25-year reopened bond saw the lowest subscription rate at 17 per cent with investors favouring the shorter dated 10-year paper.

Analysts expect interest rates to trend upwards amidst jitters on the upcoming August 9 General elections forcing investors to pack cash in short-dated debt instruments.

“What investors are signalling is that yields are expected to trend higher, and that will have a negative impact largely on the longer-duration assets. Case in point is the May auction results, which sticks out as a sore thumb, where investors preferred the shorter-tenor option,” IC Asset Managers Economist Churchill Ogutu told Citizen Digital.

“This has also played out in the T-bills market, where there is the preference for the 91-day tenor. The upcoming elections have also bolstered investors to park cash in short-term instruments, as they await the general elections outcome.”

Treasury bills (T-bills) have remained largely oversubscribed over the last one month with investors keeping a bias for the shortest 91-day paper.

During this week’s auction of T-bills for instance, all three papers were oversubscribed at 116.3 per cent while the 91-day issue had a subscription rate of 136.9 per cent.

The average subscription rate for the 91-day paper in the last four auctions stands at 163.7 per cent with investors bidding a mean Ksh.6.6 billion per issue against a target of Ksh.4 billion.