Capital Markets

T-bill share of domestic debt at four-year low

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CBK governor Patrick Njoroge. FILE PHOTO | NMG

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Summary

  • Treasury bills accounted for 27.01 percent of domestic debt as at September 4, a level that was last seen on March 4, 2016 when they accounted for 26.8 percent.
  • On the other hand, the share of the debt in the form of Treasury bonds has increased to 71.29 percent, up from a low of 66.6 percent at the end of December 2019.
  • The fall in Treasury bills debt aligns to government efforts in lengthening the maturity period to reduce refinancing risk and is also partly attributed to changing preference by investors.

The proportion of domestic debt held as Treasury bills has dropped to a four-and-half year low as the Treasury shifts preference towards longer term bonds in a bid to lengthen the maturity profile.

Treasury bills accounted for 27.01 percent of domestic debt as at September 4, a level that was last seen on March 4, 2016 when they accounted for 26.8 percent.

On the other hand, the share of the debt in the form of Treasury bonds has increased to 71.29 percent, up from a low of 66.6 percent at the end of December 2019.

The fall in Treasury bills debt aligns to government efforts in lengthening the maturity period to reduce refinancing risk and is also partly attributed to changing preference by investors.

“To manage this the government has been issuing longer-term debt, including being more accommodative of aggressive investor bids in Treasury bond auctions,” Renaldo D’Souza, head of research at Sterling Capital said.

“This has had the effect of lengthening the maturity profile of public debt.”

In June, CBK governor Patrick Njoroge announced the overall maturity profile of domestic debt had gone up to 5.7 years from 4.1 years in June 2018, with Treasury bond average maturities having increased from 6.1 years to 7.9 years over the period.

The Draft 2020 Budget Review And Outlook Paper revised the net domestic borrowing target to Sh554.6 billion from Sh494.3 billion in the current fiscal year.

This is after the downward revision of expected revenue by Sh110.3 billion to Sh1.52 trillion, owing to the declined economic activity that has led to high unemployment and tax incentives issued to cushion individuals and businesses against the impact of the pandemic.

“This borrowing strategy by Treasury is well thought given the current circumstances where Covid-19 has negatively impacted economic activity and depressed revenue collection,” said Mr D’Souza.

The short-term Treasury-bills (91, 182 and 364-day) have also been underperforming in the last five auctions, while bonds remain oversubscribed due to their higher yields.