T-bills rates on the rise

Interest rates on treasury bills (T-bills) have continued to rise on all tenors signifying that the money market is fast becoming an attractive avenue for investors.

Since the Reserve Bank of Malawi (RBM) hiked the bank rate—the rate at which commercial banks borrow from the central bank—to 21 percent, money market rates have been on the upward spiral.

The rising rates on T-bills have hit hard the Malawi Stock Exchange (MSE) which has seen investors fleeing the bourse for the lucrative money market.

In the auction held last week, according to RBM figures, interest rates increased on all tenors, 91 days, 182 days and 364 days.

Rates on 91 days jumped marginally to 19.07 percent from 19 percent, the 182 days went up to 21.31 percent from the previous week’s 20.99 percent and the 364 days ticked up to 24.08 percent from 24 percent.

Despite the rates being attractive, they are below the August inflation recorded by National Statistical Office (NSO) at 25.5 percent.

Malawi’s auction for T-bills—a paperless short-term borrowing instrument issued by RBM—is held every week to raise funds to finance maturing government debt.

In the week, the 91 days T-bills seems to have attracted investors and accounted for 50.9 percent of the total applied amount.

“Authorities raised a minor K1.8 billion against an announced amount of K4.3 billion. Total applications were at K1.93 billion, representing an under subscription of 55 percent and a rejection rate of 6.8 percent,” according to a market report.

Based on the results of the auction, investors last week invested in the short term, 91 days.

But last month, the trend shifted somewhat with investors focusing their attention to medium investment as a result of the RBM’s reduction of the uncollateralised borrowing rate of bank rate plus 2.5 percent or 23.5 percent.

Before July, short term investment was attractive because investors were not sure of the direction of the economy and were not willing to lock their funds in the medium to long term, a time when yields on short-term investment were hovering at over 22 percent.

Money market analyst James Chikavu Nyirenda, who is also chief executive officer at Blantyre-based Alliance Capital Limited, observed earlier that investors wanted to “play safer by going midway”.

“Investors want to cover their positions by going midway,” he said, adding that this could be in reaction to RBM move to reduce the uncollateralised window borrowing rate to 23.5 percent.

Nyirenda said “investors want to get to both worlds” by investing in the short and medium term.