Treasury bill rates inched closer to the seven percent range after the latest auction, reflecting the continued fall in cost of money in the economy due to rate cuts by the Central Bank of Kenya (CBK).
The 91-day T-bill rate settled at 8.01 percent in last week’s auction, down from 8.07 percent in the previous sale, while the 182-day T-bill rate fell to 8.11 percent from 8.17 percent.
The 364-day T-bill is, however, still trading at a premium to the other two, with a rate of 9.58 percent, down from 9.71 percent a week earlier.
The rates fell this week in response to the 0.25 percentage point cut in the Central Bank Rate (CBR) to 9.5 percent in the August 12 monetary policy committee meeting, which brought the cumulative cuts since August 2024 to 3.5 percentage points.
“We notice the following from our analysis of interest rate movements since the beginning of 2024: a significant decline in T-Bill rates, especially since October 2024, following the revision of the CBR from 12.75 percent to 12 percent and subsequent downward revisions,” said analysts at Sterling Capital in a fixed income note.
As a result, the 364-day paper’s rate is now at its lowest since the end of January 2022, while the 182-day and 91-day papers are at levels last seen in March and June 2022, respectively.
Over the past one year, the rates on these short-term securities have effectively halved, having traded at a range of 16 to 16.9 percent in July 2024, before the CBK embarked on its consistent monetary easing path in August 2024.
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 auctioned last week.
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 Sh1.05 trillion (as at August 8), accounting for 16.45 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.
Pursuing this policy—which is meant to reduce short-term refinancing pressure for the Treasury—saw the outstanding volume of T-bills dip to a six-and-a-half-year low of Sh546 billion in December 2023, before progressively rising again to the current level of Sh1.05 trillion.
