AVERAGE interest rates on the government's six-month and one-year Treasury bills fell this week on increased availability of cash in the market, largely from payment of maturing Treasury bills.
During the auction on Wednesday, the Central Bank raised Sh18.23 billion from Sh36.75 billion in bids for the 182- and 364-day T-bills.
Yield on 182-day paper fell to 13.91 per cent from 14.38 per cent last week – the first drop since the auction on November 26.
The government took in Sh12.67 billion, less than half of the Sh26.67 billion worth of bids. This was an increase from Sh7.67 billion last week from bids worth Sh15 billion.
“There has been a lot of maturities in the market and that's bringing in a lot of liquidity. However, its short term because there will be less maturities towards the end of the financial year (June),” chief investment officer at Cytonn Investments Elizabeth Nkukuu said on phone.
Auction of the 364-day T-bills attracted bids valued at Sh10.08 billion. The CBK accepted Sh6.16 billion up from Sh1.47 billion last week at an average interest rate of 13.96 per cent from 14.49 per cent previously.
“I think last week the signal they (CBK) were sending is they were not willing to take money at 15 per cent for one year, but they still have pressure to borrow to finance the budget,” Nkukuu said.
About Sh87.6 billion or 62.71 per cent out of Sh139.7 billion borrowed through treasury bonds and bills between July and December was spent on repaying maturing debt, Treasury CS Henry Rotich has said in the draft Budget Policy Statement for 2016. A further Sh25.8 was pumped into government deposits, leaving a net domestic borrowing of Sh26.3 billion against a target of Sh106.6 billion.
Pressure on short-term interest rates coming from maturing debt facilities is likely to ease from April, but the need to fund budgetary obligations as the financial year nears its end may still keep rates stable.
“We actually see that (short-term interest rates) easing starting from the second half of 2016,” Razia Khan, the Standard Chartered chief economist for Africa said on January 20. “Our advice will be for the Kenyan government to ensure that market conditions are conducive when it goes to the market and sometimes it is important yo extend the tenure of borrowing for infrastructure projects.”