The interest rate on the 91-day Treasury bill fell below 10 percent for the first time since April 2023 as returns from government papers continued to tumble following the recent Central Bank of Kenya (CBK) rate cuts.
The CBK saw an undersubscription on the T-bills auction for a second straight week in Thursday’s sale, where investors offered it Sh13.08 billion against a demand of Sh24 billion.
Previous sales were heavily oversubscribed as investors looked to lock in higher returns ahead of the expected decline in interest rates, but this rush to buy has now eased as returns net of withholding tax (charged at 15 percent) fell into single digits.
The 91-day T-bill’s interest rate fell to 9.95 percent in the week’s auction, from 10.03 percent the previous week. The rate on the 182-day paper edged up marginally to 10.02 percent from 10 percent previously, while that of the 364-day paper was down to 11.53 percent from 11.75 percent.
Interest rates on government securities have been falling in recent weeks in line with the progressive cut in the CBK’s base rate from 13 percent to 11.25 percent between August and December.
The T-bill rates touched highs of between 16.72 and 16.99 percent in March, and held at these elevated levels for several months before starting their rapid decline at the end of September as the August CBK rate cut started to filter through the market.
While Treasury bills have had a more pronounced fall in rates over the last two months, the 10-year bond auctioned on December 11 also signalled that longer-dated securities are also starting to align with the CBK’s push for lower rates.
The bond saw investors taking an effective return or yield of 14.68 percent on accepted bids, against the paper’s coupon (or actual interest rate) of 16 percent.
This meant that they paid a premium on the face value to secure the bond. The successful bidders averaged a price of Sh110.73 for every unit of Sh100 on the paper.
While investors will continue to enjoy the interest rates at which they bought the securities until maturity, they will thereafter have to settle for lower returns if they choose to reinvest their capital.
Retail investors, who include individuals, self-help groups, listed and private companies, educational and religious institutions and Saccos, have rapidly increased their investments in bonds and T-bills over the last two years.
They were attracted by high interest rates at a time when other investment classes such as equities and real estate were offering low or negative returns.
Recent Treasury disclosures show that in the year to June 2024, retail investors overtook banks in terms of Treasury bills holdings. Their share of the Sh615.8 billion T-bills market (as at June 30) stood at 56.2 percent, ahead of banks (33.8 percent) trusts and pension funds (8.9 percent) and insurance companies (1.1 percent).
The growth has been fuelled in part by the introduction of the CBK’s Dhow CSD digital platform that allows investors to buy and sell government securities online and through their mobile phones, making it easier for new investors to participate in the sovereign debt market.
