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Cash pile lifts T-bill bids above Sh100bn for first time
Banks have been left awash with cash and near-cash instruments and ended 2025 with a liquidity ratio of 59.3 percent, sitting well above the minimum statutory ratio of 20 percent.
Investors’ demand for Treasury bills reached a record high last week after bids in the weekly auction exceeded the Sh100 billion mark for the first time, reflecting the surplus liquidity in the money markets.
The auction registered a subscription rate of 418.4 percent from the Sh100.4 billion in bids, pointing to a growing cash pile in the economy even as businesses and households struggle to access loans from commercial banks.
The record bid follows a surge in bidding over the past weeks, a pointer to the prolonged demand for the short-dated securities.
Analysts have attributed the high subscriptions to the high liquidity in the money markets that has allowed the Central Bank of Kenya (CBK) to further drive down interest rates on the papers and reject expensive bids.
“Everything comes down to liquidity and it’s largely the liquidity driving the high subscription levels for Treasury bills,” said economist Churchill Ogutu.
“High subscriptions of Treasury bills are typically associated with low yields as CBK has room to reject aggressive bids, driving down yields.”
Interest rates on Treasury bills have fallen in line with cuts on the CBK benchmark rate amid higher investor demands on the securities, setting the stage for lower yields.
Interest rates on the 91, 182 and 364-day T-bills fell further last week to 7.5795 percent, 7.8216 percent and 8.6434 percent, respectively. The Treasury bill rates were higher and nearly touched 17 percent across the board in mid-2024.
The one-year/364-day Treasury bill registered the highest subscription level at Sh83.3 billion against a target of Sh10 billion or a performance rate of 833 percent.
The shorter-dated 91-day Treasury bill was undersubscribed at Sh1.9 billion or 48.66 percent, indicating investor interest for higher returns from the one-year paper.
The 182-day Treasury bill was mildly oversubscribed at Sh15.1 billion or a performance rate of 151.6 percent.
The bias towards the longer-dated 364-day Treasury bill has been attributed to investors favouring higher returns over positioning for short-term investments.
“Absolute demand was heavily skewed towards the 364-day paper, which received bids worth Sh83.2 billion against Sh100 billion offered, underscoring sustained investor preference for longer-tenor instruments and instruments amid attractive yields,” analysts at the AIB-AXYs Africa stock brokerage said in a research note published on Monday.
Evidence of a growing cash pile in the money markets has been seen beyond the weekly Treasury bills auction, with the CBK, for instance, mopping up nearly Sh300 billion through term auction deposits (TADS) and repurchase agreements (Repos) last week.
Commercial banks’ cash reserve above the CBK’s regulatory limits stood at a high Sh57.9 billion, further underlining the high liquidity levels in the banking system.
Treasury bond auctions have also witnessed heavy liquidity, with February’s sale, for instance, registering bids of Sh213.7 billion -- the highest for a non-infrastructure bond paper -- against a target of just Sh50 billion.
Lending from banks to households and businesses has remained largely subdued even as private sector credit growth recovered to 6.4 percent in January 2026 from a contraction of 2.9 percent a year earlier.
Private sector credit growth has historically averaged double-digit rates.
Banks have been left awash with cash and near-cash instruments and ended 2025 with a liquidity ratio of 59.3 percent, sitting well above the minimum statutory ratio of 20 percent.
External shocks from the US-Israel-Iran war are expected to exacerbate demand for the low-risk Treasury instruments as investors adopt a flight to risk stance, pivoting from riskier asset classes like stocks.
“The high subscription levels for Treasury bills can be viewed as a combination of both local and global factors. Locally, lending to the private sector by banks is way below target due to subdued demand. This has left banks with very high levels of liquidity,” said Ken Gichinga, the chief economist at Mentoria Economics.
“Globally, the US-Israel-Iran war has heightened geopolitical risks, pushing investors to low-risk assets such as government securities.” Investors purchase Treasury bills primarily for their short-term nature, which makes them ideal for short-term financial goals or parking cash.
The papers have maturities of 91, 182 or 364 days and are purchased at a discount to the face value.
An investor purchasing Sh100,000 from a 364-day Treasury bill with a return of 8.7 percent, for instance, pays about Sh91,300 exclusive of the 15 percent withholding tax on earned interest, but redeems Sh100,000 from the investment (the face value).
