Interest rates on Treasury bills have climbed to a two-year high on the back of a higher bid acceptance rate by the Central Bank of Kenya (CBK) as it looks to roll over heavy short-term maturities in the first quarter of the year.
The one-year T-bill rate is currently at 9.724 percent, the highest since February 2020, as are the six and three-month T-bill rates of 8.075 percent and 7.25 percent respectively.
The jump in rates has come at a time when the CBK has improved its uptake of investor bids, which mainly come from banks.
“Average short-term interest rates maintained the upward trajectory that started in the third quarter of the 2021 calendar year,” said Sterling Capital in their February 2022 fixed income note.
In January, the CBK took up 95 percent of the Sh123 billion investors offered, while February’s uptake rate has stood at 96 percent from Sh74.6 billion worth of bids.
This is a jump from December 2021 when the CBK took up just 68 percent of the money it had been offered by investors for T-bills.
The Treasury faces significant maturities on the short-term paper in February and March at Sh107 billion and Sh100 billion respectively, hence the increased appetite for funds which has in turn pushed the rates higher. January also recorded heavy maturities at Sh120 billion.
The State has however been limiting borrowing through issuance of T-bills to cover only maturities and liquidity management needs.
This has been done to lengthen the maturity profile of domestic debt and reduce short-term refinancing pressure, which causes rates to rise as investors cash in on the government’s desperation for funds to roll over maturing obligations.
As a result, the share of domestic debt held in form of these short-term securities has more than halved since June 2019, falling from 34 percent to 17.13 percent.
Bonds account for 80.5 percent, with their maturity profile also going up to nine years from 7.5 years in June 2019 due to sustained issuance of longer-dated paper.