Short-term Treasury bill returns fell to a five-and-a-half-year low in February 2019, with average yields on three-month T-bills dropping to 6.96%—the lowest since July 2013, according to market data.
The Central Bank of Kenya (CBK) reported that six-month and one-year T-bills also reached multi-year lows, with average rates of 8.38% and 9.49% respectively. Analysts attributed the decline to sustained high liquidity in money markets, driven by weak private sector credit growth and banks' preference for government securities.
Sanlam Investments, a leading fund manager, noted in its market report that the 91-day T-bill yield fell below 7% for the eighth consecutive week in 2019. The trend reflects a shift in banking sector behavior, with institutions prioritizing Treasury bills over lending to businesses.
Churchill Ogutu of Genghis Capital highlighted that banks' end-of-year cash reserves contributed to increased T-bill demand, exacerbating pressure on private sector credit. November 2018 data showed private sector loans grew by just 4.4% year-on-year, the highest rate since 2016 amid regulatory interest rate caps.
The CBK rejected nearly a third of investor bids for T-bills in early 2019, reducing yields but limiting government borrowing. Despite accepting Sh235.15 billion in bids year-to-date, the central bank netted only Sh56.11 billion after accounting for Sh179.04 billion in maturing debt.
