The Central Bank of Kenya (CBK) has resisted pressure from investors to pay a rate of 17 percent on Treasury bills, helped by the reduced need for aggressive borrowing after the government raked in Sh275 billion from bond sales since February.
Investors have over the last two weekly auctions sought to be paid an average of 17.01 percent on the 364-day Treasury bill, but the CBK has kept the average rate of accepted bids at 16.98 percent.
The rate on the longest T-bill tenor has barely moved over the past month, having stood at 16.91 percent as at mid-February.
On the other tenors, the upward movement of rates has also slowed down over the past month, with the 182-day going up from 16.71 percent to 16.85 percent and the 91-day from 16.55 percent to 16.65 percent.
“Sooner than later, the curve may begin to reflect lower inflation—if the direction remains south—and as such interest rate expectations coupled with the sovereign’s potential decline in appetite for local deficit financing,” said analysts at NCBA Investment Bank.
“In this case, this fiscal year’s short term rates may taper off, resulting in a significant correction in the yield curve. Before then, we anticipate the fiscal agent will continue to rein in any distortive pricing.”
The continued demand for higher rates shows lingering concerns about the government’s fiscal health—largely due to below-par tax collections—despite the heavy hauls of recent bond sales and the successful partial refinancing of the 2014 Eurobond via a new issuance last month.
To keep a lid on higher rates, the CBK has also avoided taking up new debt via T-bills, effectively limiting acceptances to covering for maturities on the short-term debt.
In the last auction, which saw bids worth Sh22.4 billion offered by investors, the CBK took up Sh19.8 billion, which was closely matched with maturities of Sh19.5 billion.
The previous auction, which raised bids of Sh41.8 billion, also saw a similar matching of the accepted amount of Sh40.2 billion and maturities of Sh40.01 billion.
Two times
Almost all the rejected bids over the two weeks were on the one-year T-bill, pointing to the efforts to keep a lid on bids priced above 17 percent.
This matching of accepted bids and maturities has helped lower the share of public debt held in form of T-bills to an all-time low of 10.5 percent, from recent highs of 34 percent in mid-2019.
In absolute terms, the volume of public debt held in T-bills has fallen to Sh548 billion, from Sh954.3 billion in June 2019.
This fall is despite the outstanding stock of domestic public debt nearly doubling from Sh2.79 trillion in June 2019 to Sh5.22 trillion today.
By CHARLES MWANIKI