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State frontloads domestic debt on low interest rates


The National Treasury building in Nairobi. FILE PHOTO | NMG

The current low rates on government securities have made conditions conducive for the Treasury to frontload on its domestic borrowing target for the fiscal year, analysts have said.

The Treasury has also taken advantage of relatively low maturities in the first month-and-a-half of the year to raise its net borrowing.

Bond rates are hovering between 9.5 and 13 percent, while Treasury bills have seen their yields drop to a six-year low of 6.36, 7.05 and 9.19 percent for the 91, 182 and 364-day papers.

“A combination of low-interest rates, heavy liquidity and sustained appetite for government securities provides a perfect opportunity to frontload domestic borrowing while lengthening the tenor for public debt,” said economists at Commercial Bank of Africa in their latest weekly fixed income report.

“The short-term rate outlook is unlikely to change.

“Liquidity conditions, which have been the main underlying driver for the pressure on rates, remain heavy.”

The Treasury has thus raised Sh80 billion in new domestic borrowing since the beginning of July, representing 28 percent of the year’s target of Sh285 billion.

A large share of this came from last week’s bond auction which raised Sh59.7 billion against a target of Sh50 billion.

In July, the Treasury raised Sh50.6 billion from a Sh40 billion bond offer.

In the first two months of the fiscal year, there have been no bond maturities, leaving only Treasury bill maturities to be refinanced.