Treasury-bill holdings fall 8% as Central Bank of Kenya shifts more debt to bonds

The share of government’s domestic debt held in form of Treasury bills dropped by 8% in 2021, reflecting the increased effort by the Treasury to reduce refinancing risk.

Central Bank of Kenya data shows the outstanding stock of T-bills stood at Sh709.3 billion at the end of last year, accounting for 17.58% of the total domestic debt stock of Sh4.03 trillion.

At the end of 2020, the stock of debt in form of T-bills stood at Sh855.7 billion, equivalent to a quarter of total domestic debt which stood at Sh3.49 trillion at the time.

The State has since 2019 been working to cut the share of debt held in form of the short term securities while increasing that of long-dated bonds in order to lengthen the maturity profile of domestic debt.

This has seen the average time to maturity for Treasury bonds rise to nine years in December from 7.5 years in June 2019.

Bonds now account for 82% of the debt, up from 74% a year ago.

Movement in interest rates on the T-bills has however remained limited despite the Treasury’s lack of appetite for them.

Average yields for the 91- day and 182-day T-bills ended last year at 6.96% and 7.58% respectively, compared to 6.86% and 7.51% in 2020.

Analysts at city based investment bank Sterling Capital say however that this year will likely see upward pressure on yields across government securities due to increased budget financing pressure.

The potential approval of bank requests for upward reviews of their lending rates by the CBK would also heighten competition between the government and private sector for credit, pushing up the government’s borrowing costs.