Interest rates on treasury bills have trended downwards for the past 10 consecutive weeks after the first rate cut in 2024 with investors expecting even bigger cuts.
The aggressive tightening by the Central Bank of Kenya (CBK) in 2023 spilling over to 2024 buoyed the higher yields that clocked 18% in February – popularizing the short-term government debt.All the three papers were oversubscribed with investors rushing to lock in higher returns amid expected rate cuts next week.This week, the government raised KSh53.9 billion against the targeted KSh24 billion – a 224.8% oversubscription, higher than 87.2% under subscription registered last week.The CBK however accepted only 54.2% of the bids received amounting to KSh29.2 billion rejecting aggressive bids.
Demand remained pegged on the 91-day paper, attracting bids worth KSh17.4 billion against the KSh4 billion on offer, an oversubscription of 433.8%. The CBK however accepted KSh12.5 billion on this tenor.
The 182-day paper attracted bids worth KSh20.2 billion against KSh10 billion on offer – a 202.1% oversubscription. The 364-day paper on the other hand received bids worth KSh16.4 billion of the KSh10 billion on offer – a 163.9% oversubscription.
Yields on all the tenors edged lower trailing below the 16.73% mark following the 0.25% rate cut by the Monetary Policy Committee in August to 12.75%.
The accepted average yield on the 91-day, 182-day and 364-day papers declined by 0.07%,0.09% and 0.03% respectively compared to last week’s auction to 15.7%, 16.5% and 16.7%.
Even with the CBK pushing for lower borrowing rates, the government’s appetite for money from the domestic market slows down the efforts, while investors are seeking higher returns equivalent to the risk associated.
This translates to high debt servicing costs biting the government where the government pays more than half of what it borrowed as interest.
“Discount rates have been on a moderate decline across all tenors over the past month, allowing for lower cost of public debt while minimizing refinancing and liquidity pressures,” Ronny Chokaa, an economist and investment analyst noted while speaking to The Kenyan Wall Street.
The CBK’s monetary policy committee is expected to meet on Tuesday with markets weighing on 0.5% and above cut.
