Treasury bill interest rates climb to their highest level in two years

Capital markets

Treasury bill interest rates climb to their highest level in two years


The National Treasury building in Nairobi. PICTURES | NJAU SALATON | NMG

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Summary

  • The one-year Treasury bill rate is currently at 9.724%, the highest since February 2020, as are the six- and three-month Treasury bill rates of 8.075% and 7.25% respectively.
  • The rate hike came at a time when the CBK improved its acceptance of offers from investors, which come mainly from banks.
  • In January, the CBK took over 95% of the 123 billion shillings offered to investors, while February’s take-up rate stood at 96% on 74.6 billion shillings of offers.

Interest rates on treasury bills hit a two-year high on the back of a higher bid acceptance rate by the Central Bank of Kenya (CBK) as it plans to roll over heavy short-term maturities in the first quarter of the year.

The one-year Treasury bill rate is currently at 9.724%, the highest since February 2020, as are the six- and three-month Treasury bill rates of 8.075% and 7.25% respectively.

The rate hike came at a time when the CBK improved its acceptance of offers from investors, which come mainly from banks.

“Average short-term interest rates maintained the upward trajectory that began in the third quarter of calendar year 2021,” Sterling Capital said in its February 2022 Fixed Income Note.

In January, the CBK took over 95% of the 123 billion shillings offered to investors, while February’s take-up rate stood at 96% on 74.6 billion shillings of offers.

This is a jump from December 2021, when the CBK took only 68% of the money offered to it by investors for Treasury bills.

The Treasury faces large maturities on short-term paper in February and March at 107 billion shillings and 100 billion shillings respectively, hence the increased appetite for funds which in turn pushed rates to the bottom. rise. January also saw heavy maturities at 120 billion shillings.

However, the State has limited borrowing by issuing Treasury bills to cover only maturities and liquidity management needs.

This was done to lengthen the maturity profile of domestic debt and reduce short-term refinancing pressure, leading to higher rates as investors take advantage of the government’s desperation for funds to roll over bonds coming to maturity. due date.

As a result, the share of domestic debt held in the form of these short-term securities has more than halved since June 2019, from 34% to 17.13%.

Bonds account for 80.5%, with their maturity profile also changing to nine years, from 7.5 years in June 2019, due to sustained issuance of longer-dated paper.

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