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Yield on Treasury bills drops ahead of CBK interest rate decision
A further cut would immediately exert downward pressure on the T-bill segment, especially the 364-day paper whose yield has been tracking the CBR more closely than the other two tranches.
Treasury bill yields have hit a floor of 7.7 percent as the market awaits further signals on interest rates from the Central Bank of Kenya (CBK) monetary policy committee, which holds its last meeting of 2025 on Tuesday.
The 91-day T-bill has held at the 7.78 percent level for the last four weeks, while the 182-day has stood at 7.8 percent for five weeks. The one-year T-bill has meanwhile moved between 9.34 percent and 9.37 percent for the last eight weeks, settling at 9.36 percent in last week’s sale.
The sticky rates have also stemmed from a move by the CBK to enforce yield discipline by rejecting expensive offers, while investors have largely limited themselves to rolling over their maturing paper at the weekly auctions.
In its last meeting on October 7, the MPC lowered the base rate by 0.25 percentage points to 9.25 percent, which was the eighth straight cut in meetings held since August 2024, when the rate stood at 13 percent.
In that period, T-bill rates have fallen from a range of 16 percent to 17 percent to the present levels of 7.7 percent to 9.4 percent.
A further cut next week would immediately exert downward pressure on the T-bill segment, especially the 364-day paper whose yield has been tracking the CBR more closely than the other two tranches.
“The policy signal from next week’s monetary policy committee meeting will influence expectations about near-term interest rates. As markets await fresh impetus, short-end yields should continue to record negligible moves,” analysts at NCBA said in a note ahead of last week’s auction.
In the latest auction on Thursday, investors offered the government Sh52.86 billion against the target of Sh24 billion, riding on maturities worth Sh34.8 billion to fund their bids.
The highest volume of bids was on the one-year T-bill at Sh30.4 billion, out of which the CBK accepted Sh17.9 billion. Investors asked for a yield of 9.38 percent, with the regulator settling at an average of 9.36 percent on accepted offers.
On the 182-day T-bill, offers stood at Sh14 billion, and acceptances at Sh13.99 billion, with the average asking yield at 7.81 percent. The 91-day paper raised Sh8.48 billion from bids of a similar amount, at a rate of 7.77 percent, although investors had demanded 7.79 percent.
In a period of falling interest rates, investors have been prioritising higher-yielding paper in auctions, both in the T-bills and bonds segments.
On Wednesday, the CBK closed the sale of December’s dual tranche bond that targeted Sh40 billion from a reopened 25-year paper that was first sold in May 2021 at a coupon of 13.92 percent, and a 30-year bond first sold in February 2011 that pays annual interest of 12 percent.
Investors offered a total of Sh53.13 billion in the auction, with the CBK taking up Sh47.1 billion. The 25-year bond accounted for the bulk of the activity with bids of Sh48.5 billion and an acceptance of Sh43.2 billion, while the 30-year bond realised just Sh3.9 billion from offers worth Sh4.59 billion.
