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AFRICA DEBT-Kenyan yields set to ease at auction
Posted on Saturday, March 24, 2012 @ 14:51:55 CDT by kwpnews


NAIROBI, (Reuters) - Yields on Kenyan Treasury bills are expected to ease further at auction next week, but at a slower pace than previous weeks, due to concerns inflation might not fall in March as previously anticipated, traders said.

Inflation in east Africa's biggest economy began easing in December after the central bank launched an aggressive cycle of monetary tightening. It pushed down bond yields that had climbed for much of the year to above 20 percent.

The central bank is scheduled to sell 91- and 182-day Treasury bills worth 7 billion shillings ($84 million) on March 28.

"Rates may continue to taper off but not as fast as before because the outlook on inflation remains uncertain," said Jackie Muchangi, a trader at Bank of Africa.

Consumer prices fell by a bigger-than-expected margin in February to 16.7 percent from 18.3 percent in January, extending the fall to a third straight month.

However, concerns over higher fuel prices has raised fears that Kenya might not be out of the inflation woods yet.

Heavy demand at a sale of 182-day bills on Wednesday pushed the weighted average yield down to 17.726 percent from 18.112 percent last week, while rates on 91-day debt fell to 17.006 percent in a sale that was under-subscribed.

The yield on a one-year Treasury bond also fell 160 basis points to 16.432 percent at an oversubscribed auction on Tuesday.

"People don't have a lot of confidence that the inflation number will come down so fast. That's why they are willing to forego the 91-day paper for the longer papers," said Alex Muiruri, an analyst at Africa Alliance Investment Bank.


Nigerian bond yields are seen falling further at next week's monthly debt auction amid strong demand from offshore and local investors competing for a lower-than-expected amount on offer, dealers said.

Nigeria will auction 50 billion Nigerian naira ($317 million) in sovereign bonds maturing in 2019 and 2022 on March 28, its third monthly debt auction this year.

Yields have been dropping across the curve at the secondary market this week because of a lower-than-expected inflation figure for February and a decision by the central bank to retain its benchmark interest rate at 12 percent.

The central bank kept its base rate on hold at 12 percent for the third time in a row on Tuesday, saying that while it was concerned about inflationary pressures, the government had taken positive steps to tighten fiscal policy.

Dealers said the secondary market would also take its cue from whatever happens at the auction next week

"We expect yields to decline further in the near term because of the prevailing perception in the market that there will be no major change in policy that could warrant upward movement in returns on fixed income instrument," another dealer said.

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