LONDON Feb 17 (Reuters) – Kenyan yields are expected to continue their decline at bond and Treasury bill sales next week as subscription rates increase, while a Zambian bond sale on Friday is likely to attract strong demand from local investors.
KENYA
Kenyan Treasury bills yields are expected to keep falling at a sale next week due to high demand from investors keen to take advantage of the high rates before they decline further.
The Central Bank of Kenya is due to auction 7 billion shillings ($84.46 million) of 91-day and 182-day bills.
The bank will also offer a 1-year bond and a 12-year infrastructure bond on Wednesday, with traders expecting heavy subscription and lower yields on the 1-year paper.
At an oversubscribed auction this week, the weighted average yield on the 182-day bill fell to 19.54 percent from 20.02 percent previously. The central bank sold securities worth 6.58 billion shillings though it had offered 3 billion shillings.
“My take is everyone is trying to lock in the gains. So the rates are going to go down because demand will be higher than what CBK wants to take,” said a fixed income trader at one commercial bank.
The yield on the 91-day paper came in at 19.33 percent from 19.81 percent last week. The central bank accepted bids worth 2.72 billion shillings out of 4 billion shillings offered.
Traders said they expected a drop of up to 100 basis points on the 91-day bill’s yield, while that on the 182-day bill was expected to ease by some 48 basis points.
“The rates should continue to come down,” said Anthony Wangari, fixed income trader at Faida Investment Bank. “I think they should settle at around 18 percent.
“Subscriptions will go up. These people don’t have anywhere to take the money so T-bills are becoming the only alternative.”
ZAMBIA
Zambian bond yields are expected to remain broadly flat at an auction today, the biggest of the year so far, though yields on more popular shorter-dated paper could fall marginally due to competitive bidding.
The sale of 200 billion kwacha ($38.5 million) of bonds with tenors ranging from two to 15 years is likely to be fully subscribed, traders said. However, offshore interest may be modest given the more attractive yields on offer in Kenya and Uganda.
“It’s likely to be fully subscribed,” said one trader. “We see demand on the shorter end of the curve, the 2 to 5-year tenors. The market has a preference for the shorter-dated papers. The longer-dated paper can tend to be quite illiquid.”
The 2-, 3- and 5-year bonds would also be in shorter supply, as there were more bonds on offer and the auction size had not increased, the trader added.
“It will increase demand for those particular tenors,” he said. “It will be more competitive to bid on the shorter end of the curve than it would be normally. Yields should be positioning to remain flat or come off marginally.”
Yields on the 2- and 3-year bonds eased to 12.41 percent and 13.04 percent respectively at a January auction, from 14.7 percent and 15.15 percent the previous month. The 5-year bond’s yield fell to 14.20 percent from 15.42 percent.
The bulk of demand at today’s auction is likely to come from local banks and pension funds, said one senior trader, as foreign interest has been muted since presidential elections last September. The high yields on offer in Kenya and Uganda were also more appealing to offshore investors.
“At the moment, there’s not much appetite,” the senior trader said. “If you look at where we tend to be compared with Kenya and Uganda, where yields are a bit on the high side right now so most of the capital should be flowing there.”
(Reporting by George Obulutsa and Tosin Sulaiman; Editing by Ed Cropley)
