Kenya T-bill yields soar after rate hike

NAIROBI: Yields on Kenya's 6- and 12-month Treasury bills soared at a sale on Wednesday after the central bank delivered a shock 4-percentage point rise in base interest rates and traders said yields would rise further.

The weighted average yield on the 364-day Treasury bill jumped to 14.499 percent from to 12.536 percent at its last sale while that of the 182-day paper also rose to 14.283 percent from 13.493 percent, the central bank said in a statement.

The 364-day bill received bids worth 219 million shilling for the 5 billion shillings offered, a 4 percent subscription rate, while the 182-day received 4.07 billion shillings in bids for the 3 billion shillings offered.

"People were a bit cautious bidding for the one year. Going forward, it (the rate decision) is a clear indication that interest rates will rise, so we expect government paper to go up also in the coming auctions," said Robert Gatobu, fixed income trader at Bank of Africa.

The central bank raised its benchmark Central Bank Rate to 11 percent from 7 percent earlier on Wednesday in an effort to stem inflationary pressures, stabilise the exchange rate and re-establish healthy growth.

Traders said they expected yields to rise broadly on government paper in response.

"We may see a raise in bank rates and interest rates on government papers, which will mop up excess liquidity from the market," said Duncan Kinuthia, head of trading, Commercial Bank of Africa.

The bank had offered a total of 8 billion shillings' ($78.5 million) worth of the two papers. It received bids worth 4.29 billion shillings. It accepted 3.69 billion shillings' worth of the bills.

The central bank said it would offer 9 billion shillings' worth of both papers next week.

The central bank will sell a 91-day Treasury bill on Thursday in which analysts also expected a higher yield.

Copyright Reuters, 2011