In a significant development for Kenya’s investment landscape, the share of the government’s domestic debt held in the form of Treasury bills has reached a new low of 11.8 percent, down from 15.01 percent in January. This shift signifies an increased focus on repaying short-term securities as part of efforts to extend the maturity profile of the country’s public debt.
Recent data from the Central Bank of Kenya (CBK) reveals that the outstanding stock of Treasury bills has decreased to Ksh 567.7 billion as of September 1, compared to Ksh 671.51 billion at the start of the year. At the same time, the proportion of Treasury bonds in the government’s domestic debt has grown to 86.05 percent from 82.95 percent at the beginning of the year.
The CBK has been strategically managing T-bill bids to match maturities in recent auctions, occasionally resulting in repayments when maturities are low. For instance, in the latest auction, the CBK took up Ksh 38.77 billion against maturities of Ksh 40.9 billion, leading to a net repayment of Ksh 2.13 billion. The previous week also witnessed net repayments of Ksh 4.8 billion after an uptake of Ksh 23.1 billion against maturities worth Ksh 27.9 billion.
As of the end of August, the Treasury’s total domestic debt amounted to Ksh 4.81 trillion. This reduction in T-bill volume aligns with the government’s strategy to lengthen the maturity profile of domestic debt by issuing long-dated bonds while reducing reliance on T-bills for budget financing.
This shift in strategy was prompted by concerns over the short maturity profile of domestic debt in June 2018, which exposed the government to refinancing pressure due to large debt repayments occurring at shorter intervals. Since then, the maturity profile for bonds has increased to approximately nine percent, allowing the government to make more extended fiscal projections that consider debt servicing costs.
However, the shift towards long-term bonds has faced challenges due to rising interest rates. T-bill rates have exceeded 14 percent across all three tenors, while recent bond issuances have yielded rates as high as 16.9 percent. For example, in July, the government introduced a dual-tranche bond, with a new five-year and reopened 10-year paper, returning yields of 16.84 and 15 percent, respectively. In August, it reopened the five-year paper from July at the same coupon rate and introduced a new two-year bond with a coupon of 16.97 percent.
To manage the impact of high-interest rates, the government has reopened the August two-year tranche for sale this month and is further reopening July’s 10-year paper. These actions aim to limit exposure to high interest rates over shorter periods and within a few outstanding issuances.
In conclusion, Kenya’s evolving debt management strategy reflects its commitment to secure long-term financing and mitigate risks associated with short-term debt. These developments are reshaping the investment landscape in Kenya, impacting both domestic and international investors as they seek to adapt to changing market dynamics.
Photo Source: Google
12th September, 2023
By: Delino Gayweh
Serrari Financial Analyst
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