Interest rates across all three tenors of Treasury bills crossed the 14 percent mark in last week’s auction, as the government caved into higher rate demands by investors to cover maturities worth Sh40.9 billion.
The short-term rates have been rising in recent auctions, but the Central Bank of Kenya (CBK) had in the previous week’s sale shown resolve to resist paying above 14 percent on the one-year paper.
However, in last week’s sale, the government accepted bids above this threshold on all three tenors, with the 364-day T-bill seeing its yield jump by a percentage point to 14.86 percent.
The 182-day paper’s yield rose to 14.37 percent from 13.94 percent in the previous sale, while the 91-day T-bill paid investors 14.23 percent from 13.98 percent previously.
The rate movements last week also spelt an end to the inversion on the short end of the yield curve, even though bidders still overwhelmingly went for the 91-day T-bill which accounted for Sh34.8 billion out of the Sh38.8 billion raised in the sale.
Analysts said that the softening of the stance on rates was largely due to the government’s need to raise enough funds in the sale to refinance the Sh40.9 billion worth of T-bill maturities that fell due during the week.
Investors offered the government Sh38.84 billion during the auction, with the CBK leaving just Sh67.4 million out of this amount untapped.
“The curve will continue to be influenced by GOK’s appetite for domestic financing, although we posit that the regulator will be keen to subdue rate expectations especially as inflation moderated sharply in August,” said analysts at NCBA in their monthly economic report for September.
The variance between the demanded rates and what the CBK accepted was also minimal during the week, indicating that the government was determined to mop up as much cash as possible from the sale.
The rise in the short-term rates will however signal a continuation of the growth in interest rates in the economy, putting borrowers of bank loans under pressure to dig deeper into their pockets to service debt.
The State’s borrowing costs have a bearing on private sector loan pricing, with the risk-free rates on offer on government paper largely viewed as a floor for customer lending by banks, which then load a premium on these loans to cover credit risk.
