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Why T-bills stock has dropped by the largest margin this year
The increased utilisation of T-bills as a tool for new borrowing is reflected in the progressive increase in the stock of outstanding T-bills to the Sh1 trillion level from the beginning of June 2025.
The volume of the government’s domestic debt held in the form of Treasury bills fell by the largest margin this year after last week’s auction, on high maturities and a decline in bid volumes on new offers as interest rates continue to fall.
Central Bank of Kenya (CBK) data shows that the outstanding stock of T-bills, excluding those tied in repurchase agreements, shrank by Sh10 billion to Sh1.053 trillion— retreating from an all-time high of Sh1.063 trillion.
Subscription levels in auctions have fallen in the past month compared to the demand seen in June and July, the CBK data shows, closely matching maturities as investors instead pushed new capital to higher-paying Treasury bonds.
The reopened infrastructure bonds that were on sale earlier this month in a primary and tap sale, for instance, netted a cumulative Sh274.78 billion against a target of Sh140 billion, reducing the liquidity available for short-term papers.
Investors offered the government a record Sh323.4 billion in the initial sale, which closed on August 13, with the CBK taking up Sh95 billion, while the subsequent tap sale last week attracted bids of Sh207.5 billion and an uptake of Sh179.8 billion.
The 15-year and 19-year papers pay tax-free coupons of 12.5 percent and 12.96 percent, respectively, giving them a significant margin over the prevailing T-bill rates, which range between 8.0 percent and 9.57 percent, gross of 15 percent withholding tax.
The T-bill rates have come down over the past year from the range of 16 to 16.9 percent (in July 2024) in tandem with the CBK’s cutting its base rate from 13 percent to 9.5 percent in the period.
These falling rates, however, meant that the T-bills became an attractive source of borrowing for the government, which was facing tight liquidity due to under-par tax collection.
As per its medium-term debt strategy, the government prefers to use Treasury bonds for financing its budget deficit, with T-bills largely utilised 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.
The increased utilisation of T-bills as a tool for new borrowing, however, is reflected in the progressive increase in the stock of outstanding T-bills to the Sh1 trillion level from the beginning of June 2025.
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.
Over the past year, tax collection has been hit by tough economic conditions facing businesses, as well as the government’s inability to impose sweeping new tax measures after the rejection of the 2024 Finance Bill.
Some of the rejected measures were, however, reintroduced successfully via the Tax Laws (Amendment) Act 2024, which was signed in December.
The progressive increase in the volume of outstanding bills also reflects increased demand for the securities by unit trusts, which now have more than Sh500 billion in assets under management.
