T-bill interest rates fall further as CBK rejects expensive bids

The Central Bank of Kenya (CBK) at Haile Selassie Avenue, Nairobi in this picture taken on March 31, 2024. 

Photo credit: File | Nation Media Group

Treasury bill interest rates fell further in the latest auction despite higher appetite for the securities from investors as the Central Bank of Kenya (CBK) turned away expensive bids.

Investors offered the government Sh33.14 billion against its weekly target of Sh24 billion but demanded a higher than prevailing rate on the 91 and 364-day papers, leading to the CBK rejecting Sh8.7 billion out of these bids.

Last week’s sale was the first oversubscribed offer in five weeks.

As a result, the 91-day T-bill saw a fall in rate from 9.82 percent to 9.59 percent, as the CBK took up Sh9.42 billion out of the Sh13.32 billion that was offered on the paper.

The 364-day rate declined to 11.33 percent from 11.37 percent, with an uptake of Sh5.35 billion from bids of Sh10.1 billion.

Meanwhile, the rate on the 182-day paper remained flat for a fourth straight week at 10.02 percent, with the CBK taking up nearly all the Sh9.7 billion on offer.

The T-bill rates had touched highs of between 16.72 and 16.99 percent in March 2024, and held at these elevated levels for several months before starting a rapid decline of between 5.1 and 6.6 percentage points between October and early December.

The pace of fall in rates has eased off however in the last month, going down by between 0.52 and 0.86 percentage points.

The previous sharp decline in rates was in tandem with the CBK cutting its base rate from 13 percent in August to 11.25 percent in December, after easing of inflation and exchange rate pressure in the economy.

During the period that rates were coming down, there was heavy bidding on the T-bills from investors looking to secure higher paying paper before the rates bottomed out.

In 10 T-bill auctions between October 3 and December 5, investors offered the government a total of Sh723 billion—an average of Sh72.3 billion per week— with the CBK accepting Sh384.8 billion, or just over half of these offers.

By collecting an above target amount over the period, the CBK bought itself room to set aside expensive offers down the road, as was the case last week.

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