Demand for bonds set to lower

NAIROBI (Reuters) - Demand for Kenya's Treasury bonds is expected to fall sharply in the coming week despite rising yields as the market reacts to the central bank's decision to tighten liquidity in its bid to help a weakening local currency.


"I doubt there will be an oversubscription, leave alone a full subscription. Liquidity is a big problem right now," said Duncan Kinuthia, head of trading at Commercial Bank of Africa.
The Central Bank of Kenya is selling reopened five-year and 30-year Treasury bonds in August to raise up to 10 billion Kenyan shillings ($108 million).
Traders said they expected yields to rise at the auction on Aug. 24, but lower subscription rates.
"If people are borrowing as high as 13-14 percent overnight I don't see anybody having appetite for bonds. Bonds will be put on the back burner for some time," said James Chweya, a trader at Standard Chartered Bank.
Yields on all three bills sold on Thursday rose from the previous sale and traders said they would keep rising in coming auctions.
Only the 91-day Treasury bill will be auctioned next week.
"The next challenge will be whether primary auctions can be successful," said Chweya.