Central Bank of Kenya. FILE PHOTO | NMG
SUMMARY
The Central Bank of Kenya (CBK) continued with the policy of avoiding using Treasury bills to finance the government’s budget deficit, taking up just enough funds from investor bids to cover maturities in auctions in August.
CBK data shows that the monetary regulator raised a total of Sh66.1 billion from T-bill sales this month, which when matched with maturities of Sh64.2 billion meant only Sh1.9 billion in new borrowing through the short term securities during the month.
The four auctions during the month targeted a total of Sh96 billion, with the underperformance largely tied to low interest rates on the papers.
The CBK, which is the government’s fiscal agent, has been looking to lengthen the maturity profile of domestic debt by relying on longer dated Treasury bonds for deficit financing, while largely leaving the short term securities for liquidity management for the banking sector.
In last week’s auction, the government raised only Sh7.8 billion out of the target of Sh24 billion, which matched with maturities of Sh12 billion meant that there was a net repayment of Sh4.2 billion.
Rates edged up slightly during the week by between seven and 14 basis points across the three tenors, to stand at 6.74 percent, 7.19 percent and 7.49 percent for the 91-day, 182-day and 364-day T-bills respectively.
As a result of the lower uptake in recent months, the share of government securities held in form of T-bills has now dropped to 20.53 percent, with 79.47 percent in form of bonds.
Three years ago, the ratio of securities in T-bills compared to bonds stood at 38.03 percent to 61.97 percent.
The issuance of longer dated bonds has at the same time had the effect of doubling the maturity profile of these securities in just three years, going from 4.1 years in June 2018 to 8.6 years in June 2021.
Combined with the lower share of debt in form of T-bills, this has reduced the refinancing risk for domestic public debt.
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