Kenyans may have to wait a bit more for lower interest rates following expectations that a successful Eurobond that raised $2 billion would help bring them down.

The weighted yield on Kenya’s 91-day Treasury bills traded on July 3, rose to 11.40 per cent from 9.27 per cent on June 12. The interbank rate had risen to 9.10 per cent by the end of last week from an average of 6.87 per cent in the week ending June 25 and 4.51 per cent recorded in the previous week.

According to the Central Bank of Kenya, the upsurge in the T-bill rate in June was occasioned by increased government borrowing arising from the delayed issuance of the Eurobond.

Low maturities in Treasury bills and the absence of maturing Treasury bonds over the period exerted a lot of pressure on interest rates. This saw investors seeking to reallocate funds from other financial assets to the bonds market as they sought to lock in high returns.

“The fear of re-pricing partly led investors in government securities to lock in high interest rates at the short end before the government receives funds from the Eurobond,” officials at the Central Bank said in an e-mail response.

Secondly, low maturities in Treasury bills and the absence of maturing Treasury bonds over the period exacerbated pressure on rates as investors sought to reallocate funds from other financial assets.

Eurobond impact

Henry Rotich, the Cabinet Secretary of the National Treasury, said that the Eurobond funds would partly bring down interest rates. “The impact will be felt in the financial year 2014/15 where we will see an ease in domestic borrowing,” said Mr Rotich.

Analysts said that the issuance of the Eurobond and its timing was part of a plan to increase liquidity in the domestic market by easing pressure at the Treasury bill auctions. But it will take some time for the impact of the money to lead to a reduction in interest rates in the market.

“Banks will find that the safe haven and easy option of government bonds will not be available as often as they are used to and therefore I expect the banks to look to expand their loan books and make credit more available in the next three months,” said Aly Khan Satchu, an independent trader and analyst.

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Part of the Eurobond money has already gone into servicing a $600 million syndicated loan that the government borrowed from three international banks in 2012. The government would otherwise have had to borrow from the domestic market to settle such debts.

By Scola Kamau and Joshua Masinde