Capital Markets

Treasury cuts T-bills stock to 11 percent, lengthening domestic debt maturity


Treasury Cabinet secretary, Njuguna Ndung'u on August 9, 2023. PHOTO | BILLY OGADA | NMG

The share of the government’s domestic debt held in the form of Treasury bills has fallen to a new low of 11.8 percent from 15.01 percent in January, signalling increased repayment of the short-term securities amid efforts to lengthen the maturity profile of public debt.

Central Bank of Kenya (CBK) data shows that the outstanding stock of T-bills shrunk to Sh567.7 billion as of September 1, from Sh671.51 billion at the beginning of the year.

The share of Treasury bonds as a percentage of government domestic debt has meanwhile grown to 86.05 percent from 82.95 percent at the beginning of the year.

Read: T-bill interest rates surge to 14 percent

The CBK has been taking up just enough in T-bill bids to cover maturities in recent sales, while also making some repayments in some sales when there are low maturities.

In last week’s sale, the CBK took up Sh38.77 billion against maturities of Sh40.9 billion, resulting in a net repayment of Sh2.13 billion.

In the previous week, there were net repayments of Sh4.8 billion, following an uptake of Sh23.1 billion against maturities worth Sh27.9 billion.

The Treasury’s total domestic debt stood at Sh4.81 trillion by the end of August.

The fall in the outstanding volume of T-bills is in line with recent government moves to lengthen the maturity profile of domestic debt by issuing long-dated bonds while minimising the use of the T-bills for budget financing.

The measures were taken following the fall in the maturity profile of domestic debt to just 4.1 years in June 2018, which exposed the State to refinancing pressure due to debt falling due in large volumes at shorter intervals.

The maturity profile for bonds has since then grown to about nine percent, offering the government room to make longer fiscal projections, which take into account the amount to be spent on servicing debt.

The turn towards long bonds has, however, been put under pressure in recent sales due to rising interest rates, which have forced the Treasury to float a series of short-dated issuances to avoid locking itself into costly debt service for long.

T-bill rates have climbed above 14 percent for all three tenors, while recent bond issuances have seen yields go up to 16.9 percent.

In July, the government offered a dual-tranche bond comprising a new five-year and reopened 10-year (maturing in 2026) paper, which returned yields of 16.84 and 15 percent, respectively.

Read: Treasury bills lose shine in government debt mix

In August, the government reopened the five-year paper from July at the same coupon rate and also floated a new two-year bond which carried a coupon of 16.97 percent.

This month, it has reopened for sale the August two-year tranche, and made further reopening of July’s 10-year paper, with an intention to contain the high-interest rates to a period of under five years and within just a few outstanding issuances.

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