Treasury bill investors continued to push against lower returns from the securities in the latest auction, holding the rate on the 91-day paper above eight percent.
The sale saw buyers ask for an average return of 8.05 percent on the shortest tenor, with the CBK settling at eight percent flat, which was little changed from the previous week’s 8.01 percent.
There has been downward pressure on rates after the Central Bank of Kenya’s monetary policy committee cut the base rate from 9.75 percent to 9.5 percent in its latest meeting on August 11.
This was the latest in a series of cuts over the last 12 months, which have brought down the rate from 13 percent as the CBK tries to revive the growth of lending to the private sector.
T-bill rates have come down in tandem with the rate cuts, from a range of 16 to 16.9 percent in July 2024 to the present 8 percent to 9.57 percent.
In last week’s sale, the rate on the 182-day paper declined from 8.11 percent to 8.07 percent, while the 364-day paper’s rate settled at 9.57 percent from 9.58 percent.
Investors offered the CBK Sh27.2 billion in the sale, with the regulator taking up Sh24.3 billion, closely matching the target of Sh24 billion.
The 182-day paper accounted for the highest portion of accepted offers at Sh9.2 billion, ahead of the 91-day T-bill at Sh7.69 billion, and the one-year paper at Sh7.38 billion.
For the government, the lower T-bill rates have opened a path to cheaper financing for the budget, in comparison to the cost of issuing longer-dated bonds, which are paying up to 13 percent in coupons, going by the latest issuance of a tax-free infrastructure bond.
With the Treasury’s rising appetite for T-bill-denominated debt, the outstanding stock of the short-term securities has now risen to an all-time high of Sh1.06 trillion, accounting for 16.67 percent of the government’s domestic debt.
Given that they are issued weekly and on tenors of between three and 12 months, T-bills can come in handy in funding short-term liquidity needs for the government, alongside the overdraft facility at the CBK.
As per its medium-term debt strategy, the government prefers to use Treasury bonds for financing its budget deficit, with T-bills meant to serve as liquidity management tools by financial sector players.
