Low Treasury bond maturities in the first two months of the fiscal year amid high appetite for new issuances has seen the share of government debt held in short-term securities fall to its lowest level since May 2018.
Latest data from Central Bank of Kenya shows that Treasury bills now account for 33.86 percent of domestic government debt, which stood at Sh2.85 trillion on August 16.
This is a decline from the highs of 38 percent seen in October last year, and from 35.8 percent at the beginning of 2019.
Domestic debt maturities in the past two months have been on the Treasury bill side, with no bond maturities in July and August.
In absolute terms, the stock of T-bills has grown by just one percent or Sh9.9 billion to Sh964.15 billion since the beginning of July, while that of bonds has gone up by 2.9 percent or Sh51.6 billion to Sh1.799 trillion.
The market also tightened considerably in late July, cutting back the huge bids that had characterised the market. Liquidity is, however, picking up again, which could yet see volumes of T-bills go up again.
The slower build-up of the short-term securities bodes well though for the Treasury, which has been trying to lengthen the maturity profile of domestic debt, partly by issuing longer bonds.
Short-tenor securities carry a higher refinancing risk, especially at a time when the government is struggling to hit its revenue target amid a large budget deficit that requires substantial new borrowing to fill.
Uncertainty over the direction of interest rates has made it prudent for investors to put funds into short-term securities, but due to yields on T-bills slumping to a six-year low, they may be forced back to bonds.
The Treasury’s medium-term debt management strategy covering the 2018/19 to 2020/21 fiscal years calls for a reduction in the share of T-Bills in net domestic financing to around 13 per cent 2021.
That at the moment appears to be an uphill task.