(Nairobi) – Interest rates on Treasury bills have declined further, reaching levels last seen in August 2023, with the Central Bank of Kenya (CBK) continuing its easing cycle. The average yields on the three Treasury bill papers have all fallen below the 14% mark, with the 91-day paper dropping to 12.79%, the 182-day paper to 13.05%, and the 364-day paper to 13.89%.
This marks a significant reduction from the last week of July, just before the CBK implemented its first rate cut. Compared to that period, the rates on the 91-day, 182-day, and 364-day Treasury bills have fallen by 20.1%, 22.5%, and 17.9%, respectively.
Demand for Treasury bills has remained strong, as evidenced by this week’s auction, which saw a 398.1% oversubscription, although slightly down from the previous week’s record of 409.9%. The high oversubscription reflects growing investor interest, as many rush to lock in higher returns in anticipation of further rate cuts.
“If this momentum holds, rates for the 91-day and 182-day papers could approach single-digit levels, aligning with the government’s target of keeping the yield curve below 10% in the short to medium term,” analysts at Standard Investment Bank noted in a research update.
The oversubscription in recent auctions underscores investor expectations of continued rate cuts. The CBK, acting as the fiscal agent for the government, received bids worth KSh 95.5 billion for the KSh 24 billion on offer. Out of the total bids received, KSh 43.03 billion was accepted, representing 45% of the total demand.
The 91-day Treasury bill saw a remarkable oversubscription of 759.7%, though there is a noticeable shift towards longer-term papers. The 364-day paper accounted for 34.3% of the total bids, with an oversubscription rate of 328.2%. The 182-day paper saw a performance rate of 323.3%.
For the government, the falling rates on Treasury bills are a welcome relief, as they lower borrowing costs, making it easier to finance bond and Treasury bill maturities. This decline in interest rates comes after the CBK’s second consecutive rate cut in October, signaling a shift towards easing monetary policy. The central bank has reduced rates by a total of 100 basis points this year, driven by easing inflation and a stable currency, which are expected to help stimulate economic activity after a series of interest rate hikes towards the end of 2023.
Key Treasury Bill Auction Statistics
| Indicator | Details |
|---|---|
| Total Bids Received | KSh 95.5 billion |
| Amount Accepted by CBK | KSh 43.03 billion (45% of total bids) |
| Oversubscription Rate | 398.1% oversubscription (down from 409.9%) |
| 91-day Treasury Bill Oversubscription | 759.7% |
| 364-day Treasury Bill Oversubscription | 328.2% |
| 182-day Treasury Bill Oversubscription | 323.3% |
| Yield on 91-day Treasury Bill | 12.79% |
| Yield on 182-day Treasury Bill | 13.05% |
| Yield on 364-day Treasury Bill | 13.89% |
| Change in 91-day Yield (since July) | -20.1% |
| Change in 182-day Yield (since July) | -22.5% |
| Change in 364-day Yield (since July) | -17.9% |