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One-year T-bill return falls below 10pc as rates decline
Domestic interest rates, including T-bill and bond yields, have dropped in line with the central bank rate, which fell from 13 percent in June last year to 10 percent.
The return earned from the 364-day Treasury bill, also known as the one-year bill, has fallen below 10 percent for the first time since October 2022 due to the continued drop in domestic interest rates.
Domestic interest rates, including yields on Treasury bills and bonds, have followed the central bank rate (CBR), which has fallen from a high of 13 percent in June last year to 10 percent currently.
The return on the 364-day paper fell to 9.9985 percent last week from a flat 10 percent previously.
Returns on the shorter-dated 91-day and 182-day Treasury bills have also continued to fall and levelled at 8.2816 percent and 8.5433 percent, respectively, in the last auction.
Previously, the return on the 364-day T-bill peaked at 16.9899 percent at the end of March 2024.
Investor bids during the latest auction remained skewed towards the 364-day paper, which registered bids of Sh43 billion against Sh24 billion on offer.
The 91-day and 182-day papers were still oversubscribed albeit to a lesser degree at Sh7.9 billion and Sh10.4 billion respectively, against targets of Sh4 billion and Sh10 billion each.
Analysts note that investor activity has remained concentrated on the 364-day paper in anticipation of redemptions of the same paper, where the outsized demand has allowed the Central Bank of Kenya (CBK) to reject expensive bids.
“Investor demand experienced a notable surge, which we believe was driven by an increase in redemptions, as investors sought to capitalise on the rising need for debt to cover upcoming repayments,” analysts at the AIB-AXYS Africa stock brokerage said in an earlier note.
“The strong bidding position enabled the exchequer to reject more aggressive bids, further contributing to the observed decline.”
The drop in yields on Treasury bills and bonds is expected to trim the cost of government borrowing from the domestic market, helping it lower part of its local debt service cost.
Investors are also widely expected to retain their interest on T-bills amid the potential of even lower returns at future auctions.
The government remained ahead of its projected domestic borrowing target through the first nine months of the 2024/25 fiscal year on sustained investor appetite for government securities.
