Kenyan Yields Drop From Record as Government Borrowing Eases

  • T-bill rates seen staying above 15% to attract foreign inflows
  • CBA says `aggressively' lowering of yields may hurt shilling

Yields on Kenyan Treasury bills will continue to ease from record highs as the government slows down its domestic debt intake, risking a renewed bout of weakening in the local currency, according to CBA Capital Ltd.

Rates on 364-day T-bills dropped to 21.21 percent at an auction on Wednesday, the lowest since Sept. 30, from an all-time high of 22.36 percent, while 182-day paper declined to 21.03 percent from 22.3 percent. The Central Bank of Kenya accepted 12.7 billion shillings ($125 million) of the more than 60 billion shillings in bids after taking more than 21 billion shillings at a sale last week, according to data compiled by Bloomberg.

“We still expect rates to come down,” Faith Atiti, a research analyst at Nairobi-based CBA Capital, said by phone. “Aggressively dropping rates could signal a return to weakening and volatility” in the shilling, while keeping yields above 15 percent should be enough to attract foreign investors without contributing to further weakness in the currency, she said.

The shilling has gained 3.7 percent against the dollar since falling to a 3 1/2-year low on Sept. 8, when yields on 364-day securities were less than 15 percent. The higher borrowing costs have helped to attract dollars into the economy, while taking shillings out of the system and helping to ease an 11 percent depreciation in the local currency this year. The currency weakened 0.4 percent to 101.90 by 3:23 p.m. in Nairobi.

The average yield on 91-day Treasury bills fell to 19.471 percent at an auction Thursday from 22.492 percent the week earlier. The government accepted 6.9 billion shillings of the more than 33 billion shillings in tenders.

The government, which budgeted to borrow 221 billion shillings in the fiscal year through June, could reduce tapping the domestic market for funds, after getting approval for a $750 million syndicated loan from commercial banks. There has been mounting pressure on the government to stem short-term borrowing costs as the rates were no longer seen as sustainable, Atiti said.

“We expect rates to remain in double digit for remainder of the year,” she said.

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