Capital Markets

Interest rates on Treasury bills continue to climb


The Central Bank of Kenya building in Nairobi. PHOTO | DENNIS ONSONGO | NMG

Interest rates on short-term government debt securities continued to rise in the latest auction, signalling higher returns for investors in the fixed-income instruments.

The 91-day T-bill came with an average interest rate of 7.265 percent in the latest auction, up from 7.254 percent in the previous sale.

The 182-day paper’s interest rate rose to 8.063 percent from 8.062 percent while that on the 364-day security jumped to 9.774 percent from 9.764 percent.

The Central Bank of Kenya, the government’s fiscal agent, had sought to raise a total of Sh24 billion from the auction but ended up taking up Sh26.5 billion.

Investors had made bids of Sh29.3 billion, indicating increased attractiveness of the returns on the securities which are at two-year highs.

The rates have been rising on the back of a higher bid acceptance rate by CBK as it looks to roll over heavy short-term maturities in the first quarter of the year.

The Treasury faces significant maturities on the short-term paper in February and March at Sh107 billion and Sh100 billion respectively, hence the increased appetite for funds which has in turn pushed the rates higher. January also recorded heavy maturities at Sh120 billion.

The state has however been limiting borrowing through issuance of T-bills to cover only maturities and liquidity management needs, rather than using them to fill part of the budget financing component from the domestic market.

This has been done in order to lengthen the maturity profile of domestic debt and reduce short term refinancing pressure, which causes rates to rise as investors cash in on the government’s desperation for funds to roll over maturing obligations.

As a result, the share of domestic debt held in form of these short term securities has halved since June 2019, falling from 34 percent to 17.13 percent.

Bonds account for 80.5 percent, with their maturity profile also going up to nine years from 7.5 years in June 2019 due to sustained issuance of longer dated paper.

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