The Central Bank of Kenya (CBK) Treasury bills auction in the tenth week recorded strong demand, with the offer receiving bids worth KES 100.4 billion against a target of KES 24 billion, translating to an overall performance of rate of 418.4%.
Demand was heavily skewed towards the 364-day paper. The bill, which offered KES 10 billion, received KES 83.3 billion in bids, translating to a performance rate of 833.2% and an oversubscription of 733.2%. The strong demand for the 364-day bill reflects investors’ urge to lock in relatively high yields for a longer period as they anticipate further interest rate cuts.
The 182-day paper recorded a subscription rate of 151.6% after receiving KES 15.2 billion in bids against KES 10 billion on offer. Meanwhile, the shortest tenor, the 91-day bill posted moderate up take, receiving bids amounting to KES 1.9 billion against KES 4.0 billion on offer.
Compared to last week’s auction, the average interest rate of the 91 day and 364-day papers declined by 0.05 bps and 14.59 bps to 7.5796% and 8.6434%, respectively. Conversely, the 182-day paper average interest rate rose by 2.16 bps to 7.8216%.
CBK Governor Signals More Interest Rate Cuts
Overall, this week’s auction recorded stronger demand compared to the previous week, driven by the heightened expectations of further interest rate cuts by the CBK. Speaking in an interview last week, CBK Governor Dr. Kamau Thugge said that the monetary authority has room for additional rate cuts after 10 consecutive reductions over the past one and a half years aimed at stimulating economic growth and private sector lending. The CBK has reduced the Central Bank Rate (CBR) to 8.75% from a 12-year high of 13% in June 2024.
“There’s scope for additional easing to stimulate the economy a bit more without having inflationary pressures, should the global environment remain unchanged,” – Dr. Kamau Thugge.
Changes in the CBR have a significant impact on Treasury bill yields. Declines in the benchmark rate typically push Treasury bill yields lower, making them less attractive to investors, and vice versa.
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