Central Bank of Kenya (CBK) data shows that the pension funds grew their holdings of government debt by Sh207 billion to Sh1.26 trillion between January 1 and December 17.
Total domestic public debt stood at Sh4.05 trillion in December, up from Sh3.49 trillion in January, with the share held by pension funds going up from 30.3 percent to 31.3 percent.
Pension funds recorded the biggest growth in lending to government among the major investor groupings in 2021, helped by the Treasury’s consistent issuance of long-term bonds which favour their investment preferences.
Central Bank of Kenya (CBK) data shows that the pension funds grew their holdings of government debt by Sh207 billion to Sh1.26 trillion between January 1 and December 17, ahead of banks whose holdings went up by Sh177.6 billion to Sh2.04 trillion.
Total domestic public debt stood at Sh4.05 trillion in December, up from Sh3.49 trillion in January, with the share held by pension funds going up from 30.3 percent to 31.3 percent in the period.
Banks in the meantime saw their share of the debt fall in percentage terms from 53.3 percent to 50.3 percent.
For pension funds, long-term bonds align more closely with their long investment outlook, unlike bank which prefer shorter dated paper due to their quick shifting liquidity needs and the short term nature of deposits.
The Treasury has largely floated longer dated bonds this year in an effort to lengthen the maturity profile of domestic debt and reduce refinancing risk for the exchequer.
CBK governor Patrick Njoroge said at the end of November that the average time to maturity for Treasury bonds has lengthened to nine years from 7.5 years in June 2019.
The government has also cut the amount of debt held in form of short term treasury bills—largely utilised by banks for liquidity management— to 18 percent from 24.6 percent in January.
“It has helped maintain stability in the yield curve. The ratio of T-bills to bonds has also fallen…a remarkable achievement in terms of stability in government’s borrowing programme,” said Dr Njoroge.
Among the other investor classes, retail investors outpaced parastatals and insurance firms in growing lending to government this year.
This class of investors comprising Saccos, listed and private companies, self-help groups, educational institutions, religious institutions and individuals raised their holdings of state debt by Sh99 billion to Sh248.4 billion.
For these investors, bonds have become an increasingly attractive option due to lower returns in other asset classes such as property and equities, and also a safe haven due to the economic uncertainty brought by the Covid pandemic.
Insurance companies added Sh49.2 billion to their stock of public debt to hit Sh273.9 billion, while parastatals saw their holdings go up by only Sh24 billion to Sh222.1 billion.
Parastatal holdings were eroded following an order by the Treasury to State corporations to surrender cash balances held in bank accounts and near-liquid assets—a move intended to cut the government’s cost of borrowing.
Having parastatals hold bonds effectively means the government ends up borrowing its own money and paying interest charges on it.
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