Treasury Bills yields plummet on 182-Days, 364-Days

Treasury Bills plummeted for the third week running at a hugely oversubscribed auction on Wednesday.

According to the Central Bank of Kenya, Treasury Bills are increasingly becoming a pointer to lower interest rates and yields on Kenya’s 182-day and 364-day.

The rate on the 182-day Treasury Bill fell by 4.2 percentage points at this week’s auction to 12.28 percent while the yield on the 364-day Treasury Bill dropped by 3.5 percentage points to 13.62 percent.

Yields on both short-term government securities were above 21 percent two weeks ago.

Last week the reduction saw the yield on the 91-days Treasury Bill plummet to 13.7 percent from last week’s rate of 19.4 percent.

According to Joshua Oigara, the Chairman of the Kenya Bankers Association and Group Chief Executive Officer of Kenya Commercial Bank (KCB), all commercial banks were expected to lower their lending rates in line with this latest reduction in interest rate.

Interest rates had soared above 25 percent and this was caused by a dramatic rise in yields on government Treasury Bills which are a key determinant of lending rates.

As Equity Group Managing Director Dr James Mwangi explains this development compelled commercial banks to lend at even higher interest rates; “We cannot lend you at 16 percent, you will buy T-Bills at 22 percent, let’s not fool ourselves.”

According to the Kenya Bankers Association Chairman, this latest development has set the stage for a return to lower lending rates.

“The fall in T-Bill rates especially the 91-day Treasury Bill to 13 % will drive lower interest rates and lending rates on loans. There is no crisis in our economy. The temporary hike in October has been well managed by the CBK and the National Treasury,” said Oigara.

The decline in T-Bill rates is also a sign of increased liquidity in the money markets which is expected to gradually spur interest rates downwards.

To bring down the cost of money, the Central Bank of Kenya has been injecting fresh liquidity into the money markets with its latest intervention being its injection of 6 billion shillings on Friday.

The CBK had offered bills worth 12 billion shillings and accepted bids worth 16.5 billion shillings.

It, however, got offers worth 45.96 billion shillings.