Investor jitters drive T-bill rates past 16 percent


Nairobi Securities Exchange. FILE PHOTO | DIANA NGILA | NMG

Investor concerns surrounding government debt refinancing risks and expectations of even higher interest rates have driven returns on the short-dated Treasury bills past 16 percent.

Last week, all the three short term papers closed above 16 percent, with the return on the 91-day T-bill closing at 16.0589 percent.

Interest rates on the 182- and 364-day papers meanwhile rose to 16.0915 and 16.2786 percent respectively in the same auction.

According to analysts, jitters surrounding the repayment of outstanding debts including the maturing Eurobond in June this year has driven investors into demanding a higher premium to hold government securities.

“The drivers of the T-bill interest rate increase surround uncertainty around the June 2024 Eurobond maturity,” noted Stacy Makau, a research analyst at stock brokerage AIB-AXYs Africa stock brokerage. “The uncertainty has unnerved investors especially with the recent change of tone by government regarding the consideration for an early buyback of the Eurobond holders in December.”

Interest rates on the short-dated government papers have been rising over the past year with investors having weighed in risks including a high inflationary environment and weakening of the Kenya shilling.

Since the beginning of last year, for instance, returns on all the three papers have soared by nearly seven percent to mirror the rise in perceived risks in government borrowing.

Interest rates on the shortest paper, the 91-day T-bill, have grown the fastest by 6.669 percentage points from 9.392 percent at the start of 2023.

Yields on the 182 and 364-day papers have surged by 6.2445 and 5.9096 percentage points respectively over the same period.

Competition from alternative investment classes such as lending to the private sector by banks who form the bulk of holders of government securities has also driven up interest rates as the State’s fiscal agents are forced to entice actors with a comparable attractive return.

The competition from alternative asset classes was heightened last December by the Central Bank of Kenya (CBK) move to raise the benchmark interest rate to 12.5 percent from 10.5 percent. “The fact that the Central Bank Rate is at 12.5 percent, there is a lot of competition for investor funds from other asset vehicles including lending to the private sector,” added Ms Makau.

The trend of short term to medium term interest rates is expected to come under the spotlight this week as the CBK closes bids on January’s new three-year bond and a re-opened five-year paper with both papers seeking to realise Sh35 billion.

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