Treasury raises pay for TBs on new maturities

Central Bank of Kenya building in Nairobi. PHOTO | SALATON NJAU | NMG 

By CHARLES MWANIKI
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Summary

• The Treasury was in the market for Sh24 billion in the weekly auction but faces maturities of Sh46.16 billion in the short-term debt.
• Yields on the papers have lately generally fallen to a six-year low.
• As a result of the heavy maturities, Central Bank of Kenya (CBK) — the government’s fiscal agent— took up all the Sh44.13 billion that investors bid at the auction.

Interest rates on the six-month and one-year Treasury bills rose slightly last week as the government sought to raise its collection from the bids to roll over huge maturities.

The Treasury was in the market for Sh24 billion in the weekly auction but faces maturities of Sh46.16 billion in the short-term debt. Yields on the papers have lately generally fallen to a six-year low.

As a result of the heavy maturities, Central Bank of Kenya (CBK) — the government’s fiscal agent— took up all the Sh44.13 billion that investors bid at the auction.

On the 182-day paper, the CBK took up Sh11.1 billion, with the interest rate going up to 7.47 percent from 7.39 percent the previous week.

The 364-day paper, which has been the most popular among investors in recent weeks, raised Sh29.8 billion, with the interest rate ticking up to 8.65 percent from 8.61 percent.

Although the rates went up during the week, analysts expect that downward pressure will remain in place, largely due to the reduced government domestic borrowing target and high liquidity in the market due to maturities and government payments.

“We believe that the factors that have pushed rates lower still remain. In the first half of the 2019/20 fiscal year, we expect the yield curve could remain unchanged with a downward bias,” said AIB Capital in a macroeconomic note released last week.

The domestic borrowing target for this year has been set at Sh284 billion, down from Sh310 billion in 2018/19.

The reduced borrowing pressure has also been a result of the government borrowing a total of Sh285 billion in the last two months through a Eurobond issue and a World Bank loan.

Given this, the outstanding stock of Treasury bills fell by Sh50 billion to Sh954.25 billion between the beginning of May and the end of June.

The stock of paper is likely to fall further due to the high maturities coming up this month, and the CBK stance of taking up little above the amount needed to roll over the debt.

Debt analysis be Commercial Bank of Africa shows that July domestic debt maturities are expected to hit Sh133 billion.