Interest rates on Treasury bills rose further in last week’s auction as investors continued to price in the recent increase in the Central Bank of Kenya (CBK) base rate, even as the regulator rejected Sh12 billion worth of bids in the sale.
The CBK said it received bids worth Sh57.97 billion in the sale, out of which it accepted Sh45.96 billion against a target of Sh24 billion.
The interest rate on the three-month T-bill rose to 16.14 percent from 16.05 percent in the previous sale, with the six-month paper seeing its rate go up to 16.18 percent from 16.09 percent previously.
On the one-year T-bill, the rate went up to 16.39 percent from 16.27 percent.
The rates movement mirrored that seen in the January Treasury bond sale, which closed last Wednesday, where its three and five-year tranches paid investors average rates of 18.39 and 18.77 percent, respectively.
The December rise in the Central Bank Rate to 12.5 percent from 10.5 percent also signalled a higher cost of money to the economy, which will reflect in higher rates on government securities and bank loans.
The move by the CBK to raise the rate was primarily driven by a need to support the shilling in the forex market, by making local securities attractive to foreign investors.
The projection by analysts is that the upward pressure on rates will also remain in the market due to elevated cash needs by the government to cover both its budgeted expenditure and debt service this month.
In the month, the Treasury has Sh199.3 billion worth of domestic debt coupon and principal repayments on its books.
“Short-term interest rates have continued to rise steadily on elevated interest rate expectations and fiscal liquidity strains. Some relief to the curve could stem from access to $682 million from the IMF funding under the Extended Fund Facility and Extended Credit Facility programme expected in the third week of January,” said analysts at NCBA Capital in a fixed income note.
Despite the need to refinance maturing debt, the CBK left Sh12.01 billion untapped from last week’s T-bill sale, continuing its recent stance of keeping a lid on the growth of short-term debt.
Instead, the Central Bank of Kenya closely matched the amount it took up with the week’s volume of maturing T-bills, which stood at Sh42.9 billion.
The stock of outstanding T-bills as a share of total domestic debt has fallen to 10.8 percent from 34 percent in mid-2019 on account of the CBK refraining from leaning on short-term papers for budget financing.
In the January bond sale, the government also left Sh12 billion on the table, this time with an eye on warding off expensive bids by investors who asked for upwards of 19 percent on average on the five-year tranche.
