T-bills slightly oversubscribed as interest rates rise

Treasury bills were slightly oversubscribed last week as interest rates on the short-term government debt instruments rose marginally.

The Central Bank of Kenya (CBK) offered a total of Sh24 billion for the 91-day, 182-day and 364-day bills and received bids amounting to Sh25 billion.

The government’s fiscal agent accepted Sh24.1 billion. The average interest rate on the 91-day paper rose to 6.706 per cent from 6.674 per cent in the previous week’s auction.

The rate on the 182-day paper increased to 7.152 per cent from 7.114 per cent while that on the 364-day debt rose to 8.094 per cent from 8.042 per cent.

Average interest rates on T-bills have been rising steadily in recent weeks, a time when the Kenya Shilling has also been depreciating relative to major world currencies, including the US dollar.

The auction results show that investors were more interested in the 91 and 364-day paper, which were oversubscribed at 139.5 per cent and 129.3 per cent, respectively. The CBK had offered Sh4 billion for the 91-day paper and Sh10 billion for the 364-day debt.

The 182-day paper managed a subscription of Sh6.5 billion or 65.03 per cent of the Sh10 billion offered, dragging down the overall subscription in the week’s auction.

The CBK is currently pursuing a policy of keeping the portion of government debt in T-bills to bonds at about 30:70.

T-bills to bonds ratio declined from 36:64 in June 2019 to 29:71 as of June 30, 2020.

“This is in line with the government’s objective of achieving 70:30 ratio of Treasury bonds to Treasury bills to reduce the refinancing risk,” said the Central Bank.