Treasury Bill Yields Drop Below 12% Following Aggressive Interest Rate Reduction Campaign
Yields on treasury bills (T-Bills) in Kenya have fallen sharply, dropping below 12% for the first time since July 2023. The decline follows an aggressive interest rate reduction campaign by the Central Bank of Kenya (CBK).
In August, the CBK initiated its monetary easing strategy with a 25-basis point rate cut, followed by a larger 75-basis point reduction. These adjustments brought the benchmark rate down to 12.00%. In its most recent monetary policy review, the CBK further reduced the rate by 75 basis points to 11.25%, signaling a return to levels last seen in 2023.
T-Bill Yields Reflect Rate Cuts
Data from the CBK indicates a significant drop in interest rates for the 91-day, 182-day, and 364-day T-Bills since the beginning of August, coinciding with the first rate cut.
“The Committee observed that short-term rates on government securities had declined sharply in line with the CBR,” the CBK noted in its monetary policy report released Thursday.
- 91-day T-Bill: Yield fell by 34.6%, from 16.00% to 10.4564%.
- 182-day T-Bill: Yield dropped by 37.4%, from 16.85% to 10.5485%.
- 364-day T-Bill: Yield decreased by 29.3%, from 16.92% to 11.9673%.
Strong Demand for T-Bills
T-Bills have maintained high investor demand, with the latest weekly auction marking the 10th consecutive week of oversubscription. The overall subscription rate stood at 176.3%, though slightly lower than the 211.1% recorded in the previous week.
Demand remained heavily skewed toward the 91-day T-Bill, which received bids worth KSh 18.9 billion against an offer of KSh 4 billion. Meanwhile, the 182-day T-Bill was undersubscribed, with bids totaling KSh 6.8 billion against an offer of KSh 10 billion.
In total, the government accepted KSh 42.2 billion worth of bids out of KSh 42.3 billion received, reflecting an acceptance rate of 99.8%.
Implications for Lending Rates
While T-Bill yields have dropped in response to the rate cuts, the effects have yet to be fully reflected in commercial bank lending rates. The CBK raised concerns in its Monetary Policy Committee (MPC) report, urging banks to adjust their rates downward in alignment with the reduced benchmark rate.
“The MPC, therefore, urges the banks to take necessary steps to lower their lending rates to stimulate credit to the private sector and, in turn, drive more economic activity,” the report emphasized.
What Are Treasury Bills?
Treasury bills are short-term government securities sold at a discount and maturing after 91 days, 182 days, or 364 days. They are a popular investment choice for those seeking relatively quick returns with minimal risk.
As the CBK continues its easing cycle, the focus remains on ensuring that the benefits of reduced rates are transmitted across the financial system to support economic growth.
