Treasury bill rates decline in February on high liquidity

What you need to know:

Central Bank of Kenya (CBK) data shows that the 10-year and five-year bond issue for February will pay interest at 14.26 and 13.94 per cent respectively. In January, Treasury’s 10-year and two-year bond issue had been priced at 16.13 and 15.8 per cent respectively.
The falling interest rates on government paper will offer hope to borrowers who are presently feeling the strain under the yoke of high loan rates that have since last June risen by 2.2 percentage points to an average of 18.3 per cent.

Interest rates on the 10-year government bond issued this month fell by nearly two percentage points compared to a similar bond issued in January on the back of high liquidity in the market, signalling a possible fall in the cost of money.

Central Bank of Kenya (CBK) data shows that the 10-year and five-year bond issue for February will pay interest at 14.26 and 13.94 per cent respectively. In January, Treasury’s 10-year and two-year bond issue had been priced at 16.13 and 15.8 per cent respectively.

Investors bid Sh56.52 billion for the bonds in February against the government target of Sh25 billion, indicating the healthy amount of liquidity in the market. The government took Sh30.29 billion — Sh5.3 billion above target.

“The money market was relatively liquid during the week ending February 17, 2016, supported by government payments.

“Central Bank’s liquidity operations resulted in a net liquidity injection. The deviation of reserve money from its target was marginal,” said the CBK in its latest weekly bulletin.

Analysts at Genghis Capital had projected the rates on the five-year bond to trade within the range of 13.8 per cent and 14.35 per cent, and the 10-year paper at between 14.5 and 15 per cent.

Cheaper debt

The falling interest rates on government paper will offer hope to borrowers who are presently feeling the strain under the yoke of high loan rates that have since last June risen by 2.2 percentage points to an average of 18.3 per cent.

The pricing of bank loans is partially influenced by the rate at which the government is borrowing, with the rate on government securities taken as the risk-free rate.

Central Bank data released two weeks ago shows that the highest average lending rate by a commercial bank at the end of December was 24.6 per cent and the lowest 15.2 per cent.

The disclosed rates are exclusive of administration fees, processing fees, valuation fees, legal fees and commitment fees.

The short-term debt in form of Treasury bills is also becoming cheaper for the Treasury.

This week’s auction of the 182- and 364-day Treasury bills saw rates fall once again, with bids also coming in higher than the amount sought by the government.