One would think the falling inflation determines the direction of tbills. However I still feel the inflation rate in the neighbourhood of 5% is high. Last year rates were very high and looking at how inflation is arrived at I would be carefull. I hope the inflation rate stabilises in the coming year and beyond.

GoK domestic debt just inches away from the Ksh1 trillion mark wooow http://www.centralbank.g...flation20-october205.pdf

[quote=the deal]GoK domestic debt just inches away from the Ksh1 trillion mark wooow http://www.centralbank.g...lation20-october205.pdf[/quote]

What's more amazing is that the average maturity of Kenyan debt rose from 4 years 9 months to 5 years 2 months in a week due to the issue of a 15yr bond. Goes to show how much of an effect borrowing on the long end of the curve has on the maturity profile of national debt - we've got a 3 month extension.

We can't ignore that we have downward trending inflation and increased liquidity, which ordinary should make it cheaper for Treasury to borrow. But the fundamental don't make sense here. Bond yields are rising purely because of demand for borrowing to finance our huge public sector. This is just to finance the wage bill, which should lead to greater inflation during an election year (we'd hope no money printing or devaluation of shilling compounds the situation).

I shudder to think the effect on interest rates when we fully implement all the devolution structures, when taxes are insufficient to fund the new infrastructure. The CBK O/D is already maxed out, they can't print.

@hisah. Off course Prof justifies his statements with debt to GDP. Unfortunately it looks like keeping a balanced budget is close to impossible this year which means that they have raise the yield curve to fund fiscal spending. You can see the momentum in Tbill rates is reflected in the repo rate as well, particularly with the term action deposit facility. Over the last 2 weeks they've risen 150-190bps to 9.8%-10% levels. But what happens between December 2012 to April 2013 when 110 billion worth of bonds mature he's going to have to jack up bond yields.

So it's likely we're not going to see any major cut in the CBR going forward, becoz he can't afford to do so. If his hands aren't tied by the budget stress (Teachers payments) then it's by liquidity management (repo) and debt repayments (bond redemptions). Not a good position to be in as governor.

Tbill yield still edging up while undersubscription still persists...