Kenya’s short-term government securities have lost their shine, with last week’s Treasury bills auction attracting the weakest demand in three years as yields slipped to fresh multi-year lows.
In its weekly bulletin, the Central Bank of Kenya revealed the September 29 auction drew only Ksh 15.1 billion worth of bids against the Ksh 24 billion on offer. This translated to a modest performance rate of 62.9 per cent.
The dip in enthusiasm came as returns on all three tenors of T-bills fell to their lowest levels in at least three years. The six-month note cleared at an average of 7.9851 per cent, sliding below the eight per cent mark for the first time since December 2021.
The three-month paper priced at 7.9 per cent, the cheapest since June 2022, while the one-year bill settled at 9.5 per cent, a level last seen in January 2022.
The sustained decline in yields is largely tied to the easing of monetary policy. The CBK has slashed its benchmark Central Bank Rate by a total of 275 basis points this year to 9.5 per cent, pulling down short-term borrowing costs.
Interbank lending rates have also hovered around the same level, giving commercial banks and other investors less incentive to chase government paper.
Treasury’s decision to shift borrowing to longer-dated bonds has further reduced pressure on short-term instruments. In a notice issued last week, the CBK reopened two existing fixed-coupon bonds for October.
The first, FXD1/2018/015, carries a 12.650 per cent coupon and matures in May 2033, while the second, FXD1/2021/020, has a 13.444 per cent coupon and matures in July 2041. The government is eyeing Ksh 50 billion from the sale to support its budget.
This bond-heavy approach has become a defining feature of the current fiscal year as the government rushes to plug a projected Ksh 923.2 billion budget deficit.
Out of the Ksh 901 billion targeted in borrowing for the year ending June 2026, Sh613.6 billion is expected from domestic investors, with the balance coming from external sources. Total financing needs, including maturing obligations, stand at Sh1.55 trillion.
By the end of September, the CBK had already raised more than ksh 400 billion locally, surpassing 40 per cent of the net domestic borrowing goal.
Most of this cash has been raised through reopenings of existing 15- to 25-year bonds, while the 30-year paper has struggled to draw significant demand.
Secondary market activity mirrored the softer appetite. Bond turnover for the week ending September fell by six per cent to Sh51 billion from Ksh 54.2 billion a week earlier.
Equities, however, painted a brighter picture. The Nairobi Securities Exchange (NSE) indices edged higher during the week to September 25, with the NASI up 1.6 per cent, the NSE 25 climbing 1.7 per cent, and the NSE 20 gaining 1.0 per cent.
Market capitalisation also rose by 1.6 per cent, while shares traded and equity turnover jumped by 13.8 per cent and 12.1 per cent respectively.
The contrast between a cooling debt market and a perkier equities segment underscores how investors are shifting their strategies as the government signals a preference for longer-term borrowing.
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