Elijah Ntongai, a journalist at TUKO.co.ke, has more than three years of financial, business, and technology research and reporting expertise, providing insights into Kenyan and global trends.

Nairobi, Kenya – The Central Bank of Kenya (CBK) has reported reduced interest rates on short-term Treasury bills in a strategic move to encourage investors to shift towards longer-term domestic bonds.

The shift aims to alleviate liquidity pressures and ensure a more sustainable debt repayment framework for the government.

Recent auction data from the CBK shows that interest rates on short-term Treasury bills have declined across various tenors.

The 91-day Treasury bill's average interest rate fell from 15.98% in December 2023 to 9.12% in February 2025, while the 182-day Treasury bill saw a drop from 15.67% to 9.52% over the same period. The 364-day Treasury bill also declined, from 16.10% in December to 10.75% in February 2025.

This downward trend suggests a deliberate effort by the CBK to lower the cost of short-term borrowing while making long-term investments more attractive to investors.

Notably, the interest rates on Treasury bonds are relatively stable, ranging between 15.68% and 16.30%. The most recent Treasury bonds auctions in January attracted interest rates of 14.21% and 15.68%.

In the recently released draft of the 2025 Medium-Term Debt Management Strategy (MTDS), Treasury raised concerns that Kenya is at a high risk of debt distress and noted that the present value of the public debt stood at 63.0% of GDP which is above the required debt threshold of 55% of debt to GDP.

According to Treasury, the domestic debt with maturity of 4 to 10 years and those with less than one year to maturity increased to 18.6% due to the National Treasury uptake of short-term debt instruments.

"The redemption profile shows that 18.6 percent of domestic debt will mature by June 2025, mainly due to short-term (treasury bills) government securities falling due" Treasury stated in the draft MTDS.

Treasury noted the Government will explore possibilities of various Liability Management Operations (LMOs) options with the aim of extending the maturity of existing debt to reduce near term maturities.

This indicated a need to reduce the stock of short term domestic loans and enhance the uptake of long-term securities to ensure to give the government a longer grace period before the securities maturity.

Notably, the government is expected to pay back about KSh 185.05 billion for three Treasury bonds set to mature in June 2025.

The CBK has taken steps to alleviate the pressures. As earlier reported on TUKO.co.ke, the CBK has invited investors for a buyback auction for the three Treasury bonds.

The buyback targets FXD1/2022/003, FXD1/2020/005, and IFB1/2016/009, with maturities of 0.3 to 0.4 years and coupon rates ranging from 11.667% to 12.500%.

The CBK plans to raise KSh 70 billion from two re-opened infrastructure bonds during the Treasury bonds auction scheduled for February 12. Speculatively the money raised from the two bonds will provide the liquidity needed to complete the buyback on February 19.

Source: TUKO.co.ke