Commercial banks have eased hold on Kenya's domestic debt as yields on government securities decline.
Interest rates on Treasury bills and bonds have been on downward trend in the past weeks, pushing the banks, which are the biggest lenders to government, to reduce hold on the debt, albeit marginally.
The lenders' stake in the over 13 billion U.S. dollars debt has declined to less than 50 percent, according to Central Bank of Kenya (CBK).
The commercial bank's hold on the domestic debt has dropped to 1.3 percent in the last three months to 49.8 percent.
"Government securities held by banking institutions decreased from 51.1 percent in June to 49.8 percent as at September 20," said CBK in its weekly bulletin received Monday.
The bank's grip on the debt market has been declining steadily each week. In the week ending September 13, the lenders' stake in the debt market stood at 50.7 percent.
"Government securities held by banking institution decreased to 50.7 percent from 51.1 percent end of June," noted CBK. The bank's reduction of hold on government securities has been consistent with drop in yields on the papers.
Interest rates on 91-day, 182-day and 364-day Treasury bills declined by up to 10 percent last week.
"Weighted average interest rates on the 91-day, 182-day and 364- day Treasury bills decreased by 3 percent, 2.4 percent and 10.5 percent to reach 9.1 percent, 9.6 percent and 10.3 percent respectively," noted the CBK bulletin.
Weighted average interest rates on 91-day, 182-day and 364-day Treasury bills had decreased by 9.6, 39.5 and 34.3 basis points respectively in the week ending Sept. 20.
The government during the week, as in last week, offered for sale 34.5 million dollars each of 91-day, 182-day and 364-day Treasury bills.
In addition, Treasury offered for sale a 12-year fixed coupon infrastructure bond worth 230 million dollars. "The infrastructure bond's weighted average interest rate declined by 428 basis points to reach 12.4 percent," noted CBK.
The 12-year infrastructure bond was last sold in February, where the yield stood at 16.6 percent.
Last week's 230 million dollars infrastructure bond recorded a 188.1 percent performance, attracting bids worth 432 million dollars, of which 230 million dollars was accepted.
However, Treasury bill's performance was lacklustre, with each of the papers recording less than 100 percent subscription.
"Treasury bills performance during the week was subdued with total bids received amounting to 69 million dollars, of which 30 million dollars, 25 million dollars and 14 million dollars were respectively for 91, 182 and 364 days Treasury bills respectively. "
This represented performance rates of 84.1 percent, 68.9 percent and 38.7 percent, respectively.
"The government accepted all the Treasury bill bids during the week. Total non-competitive bids amounted to 34.5 million dollars.
Commercial bank's hold on domestic market is expected to decline in coming weeks as interest rates drop if past trends are anything to go by.
Following banks in stake of the debt market are pension funds at 25.7 percent, insurance companies at 10.6 percent, other investors that include self-help groups at 10.2 percent and parastatals at 3.8 percent.
As banks have been cutting their hold of the debt market, the other stakeholders have been increasing.
"The share of government securities held by insurance companies, pension funds and other investors, which comprise saccos, listed and private companies, self-help groups, educational institutions, religious institutions and individuals increased from 10.5 percent, 25.3 percent and 8.7 percent respectively in June," said CBK.
Kenya's gross government domestic debt currently stands at 13. 02 billion dollars, up from 12.1 billion dollars in June. This is an increase of 949 million dollars.
The domestic debt makes 55.5 percent of the East African nation' s total public debt, which is 52 percent of the country's gross domestic product.