The steady decline in Treasury bill interest rates has eased off over the last four weeks, indicating that investors are reluctant to accept lower returns amid an upward revision of the government’s borrowing target and below par tax collection.
Central Bank of Kenya (CBK) data on the weekly auctions shows that the rate on the 364-day T-bill has declined only marginally from 10.02 percent to 10 percent over the period, having fallen from 10.5 percent in the previous month.
On the 182-day paper, the rate has declined from 8.61 percent to 8.58 percent over the last month, and on the 91-day paper, from 8.44 percent to 8.36 percent. In the weeks leading up to April, these rates declined by between 0.2 and 0.3 percentage points.
Having settled at three-year lows, recent auctions have seen investors demand marginally higher rates on the shorter duration T-bills compared to the prevailing yield curve, while the CBK has continued to reject those bids it deems expensive.
In last week’s sale, investors put up bids worth Sh43.12 billion, out of which the CBK took up Sh37.41 billion, leaving the remainder on the table on account of higher than acceptable rate demands.
The bulk of the offers and accepted amount fell on the 364-day paper at Sh29.7 billion and Sh24 billion respectively. The 182-day paper raised Sh5.32 billion from offers totalling Sh5.35 billion, while the 91-day paper netting Sh8.07 billion from offers of Sh8.08 billion.
T-bill buyers asked for an average of 8.53 percent on the 91-day T-bill, with the government settling at 8.36 percent, while on the 182-day paper the average asking rate on bids stood at 8.69 percent, against the accepted average of 8.58 percent.
These rates have fallen progressively from a high range of 16.73 percent to 16.99 percent in August 2024, in line with the CBK’s monetary policy committee cutting the base lending rate from 13 percent in August last year to 10 percent in April.
The rate cut signalled a fall in the returns on government securities as the general cost of money in the economy came down.
The Treasury has, however, been revising the domestic borrowing target upwards in supplementary budgets, indicating to investors that its demand for their money would go up. This has made them more willing to test the CBK’s resolve on lowering interest rates.
The first supplementary budget, passed in August 2024, raised the domestic target from Sh263.2 billion (as per the June 2024 Budget) to Sh413.1 billion, before a second supplementary vote, approved in March 2025, increased it further to Sh605.7 billion.
The Treasury also revised its net target from external borrowing from Sh333.8 billion in June 2024 to Sh355.5 billion in August, before cutting it to Sh281.5 billion in Supplementary II after agreeing to shelve the last review of its $3.6 billion funding programme with the International Monetary Fund (IMF) ahead of its expiry in April.
At the same time, the second supplementary budget lowered the tax collection target by Sh51 billion to Sh2.58 trillion from Sh2.63 trillion that was in the first supplementary budget. This first revised budget had in turn lowered the target from the Sh2.92 trillion that was passed in the June 2024 budget estimates.
