Investors offered the government Sh400 billion in bond and Treasury bill auctions in the last three weeks as they rushed to lock in higher yields before the Central Bank of Kenya (CBK) cut its base rate on February 10.
The apex bank lowered the base rate by 0.25 percentage points to 8.75 percent, the 10th consecutive cut since August 2024. Over the period, the rate has come down by a cumulative 4.25 percentage points from 13 percent.
With the market anticipating the cut and enjoying ample liquidity from incoming maturities, the recent auctions were heavily oversubscribed.
The last three Treasury bill sales raised cumulative bids worth Sh185.6 billion against a target of Sh72 billion, with the one-year paper accounting for 80.5 percent of these offers at Sh149.45 billion.
The 364-day T-bill was paying a premium of up to 1.6 percentage points in interest above the rates on the shorter 182-day and 91-day tranches before last week’s sale, hence the investor preference for the longer tenor.
The premium, however, narrowed after the one-year yield declined to 8.97 percent from 9.19 percent in the latest auction last Thursday —in reaction to the CBK’s rate cut— while the 182-day and 91-day rates remained unchanged at 7.7 and 7.6 percent.
In the February Treasury bond whose sale closed on February 11, investors offered the government Sh213.74 billion against a target of Sh50 billion on the pair of reopened 15-year and 25-year papers that pay annual interest of 12.34 percent and 13.4 percent respectively.
“Overall, ample market liquidity and local debt maturities will continue to uphold strong investor subscription with a sustained chase for yield. In our view, yields are yet to bottom out given the current macroeconomic backdrop,” said analysts at NCBA Investment Bank in a weekly fixed income note.
Despite the high appetite for the longer dated papers, the CBK rejected Sh113.2 billion from the bond sale, signaling that it is determined to push for lower borrowing costs for the government in the domestic market.
The high subscriptions allowed it to net Sh100.54 billion from the issuance, which was double its advertised target.
In the T-bills segment, it rejected Sh43.6 billion across the three auctions, taking up Sh149.45 billion from the offered Sh185.6 billion. For investors, although there has been a general fall in returns from government securities in the past year, the fall in the T-bills segment has been more pronounced compared to bonds.
Treasury bonds auctioned in 2025 and in the first two months of this year paid coupons or interest rates of between 11.67 percent and 14.63 percent, down from highs of up to 18.5 percent in 2024.
T-bill interest rates have meanwhile fallen to a range of 7.6 percent and 8.97 percent, from a high of 16.7 to 16.9 percent in August 2024. The race to lock in the higher paying securities has also opened a window for the government to lengthen its domestic debt maturity profile without compromising the performance of primary bond sales.
In the last six months, the CBK has reopened a succession of 15-year, 20-year and 25-year bonds that were floated between 2018 and 2022, towards this goal of cutting short term refinancing pressure.
