Treasury bill rates drop further with fall in inflation rate

The ease in interest rates continued with a further drop in Treasury bill yields this week.

The yield on the three, six-month and 364-day Treasury bills fell by 0.111, 0.078 and 1.005 percentage points respectively to 20.503, 20.72 and 20.95 per cent.

Subscriptions for the treasury securities remained high as investors sought to lock in the high returns before the expected drop in interest rates.

“The trend on the Treasury bill rates continued on its downward trajectory as the amounts offered by investors picked up. As we have noted, this trend is occurring as a result of lower inflationary expectations,” said NIC Securities in a research note.

Treasury took up Sh9.3 billion and Sh4.7 billion from the 364-day and 91-day Treasury bills auctions.

It was seeking Sh6 billion through the 182-day and one-year security and Sh4 billion from the 91-day paper.
“We are also seeing increased competition in the fixed income space as suggested by over-subscriptions which will cause bid-shading as investors try to ensure they get full allocations to lock in yields at current levels,” said Evans Mugi, a research analyst at Genghis Capital.

Mr Mugi said the decline in expected inflation and increased competition at primary auctions will see investors raise their bid prices at subsequent auctions, pushing yields lower. “Yields will be determined by the rate of inflation at the particular time and based on our forecasts for single-digit inflation in 10 to 12 months, we expect the 91-day T-Bill to close the year at between 11 and 13 per cent,” he said.

On Monday, the Kenya National Bureau of Statistics said the cost of living had dropped to 18.31 per cent for the second month in a row after consistently going up over a period of more than 12 months.

The drop in the cost of living was attributed to a drop in the prices of petrol and diesel, which caused the transport index—which captures the cost of matatu, bus and taxi fares—to go down by 1.47 per cent.
This also eased the cost of electricity. The communication index—which captures the cost of making calls, also went down by 0.02 per cent contributing to the drop in the cost of living.

“Cognisant of the prevailing economic challenges of high inflation and a weak currency and the fact that Government is running behind its targeted domestic borrowing, we see continued decline in rates mainly driven by increased liquidity targeting the primary offers,” said Standard Investment Bank in an investors’ brief.

The first drop in Treasury security yields came in second week of January after the rate on the 91-day Treasury bills dropped by 0.03 percentage points to 20.76 per cent after consistently rising in the past 27 auctions to a peak of 20.79 per cent.