Treasury bill interest rates climbed for the fifth week in a row, at last week’s auction of the government securities by the Central Bank of Kenya, the Bank’s weekly bulletin showed.

A treasury bill is a paper-less short term borrowing instrument issued by the Government through the Central Bank of Kenya (as a fiscal agent) to raise money on a short term basis – for a period of up to 1 year, according to the Central Bank of Kenya’s website.

Treasury bills are issued at a discount, meaning that buyers of the instruments pay lower than the actual price for each Treasury bill, and then get redeemed the entire price of the Treasury bill once it matures.

For example, at last week’s interest rate of 10.83 percent, if you bought a 91-day Treasury bill worth Ksh 100,000, which is the lowest amount one can buy, you would pay Ksh 97,370.90 for the Treasury bill, and then the Central Bank of Kenya would redeem you Ksh 100,000 after 91 days or three months. You would therefore make a profit of Ksh 2,234.73 after a withholding tax of deduction of 15 percent on your earnings. The formulas used to calculate Treasury bill yields are available on the Central Bank of Kenya’s website.

Apart from 91-day treasury bills, the Government through the Central Bank of Kenya also offers 182-day and 364-day Treasury bills which mature after these respective periods.

In January this year, the interest rate on 91-day Treasury Bills hit an average of 20.56 percent, a rate not seen since twelve years ago, CBK data shows. By the first week of June this year, the interest rate had subsided to an average of 10.54 percent.

Last week’s Interest rates for the 91-day, 182-day and 364-day treasury bills increased to 10.83 percent, 11.42 percent and 13.00 percent respectively according to the CBK weekly bulletin  for the week ended July 6 2012. The Government last week offered for sale Ksh 6.0 billion worth of 91, 182 and 364-day Treasury bills, accepting all bids received worth Ksh 2.1 billion, the report added.

Total Treasury bill subscriptions were last week at 35 percent compared to total subscriptions of 138 percent in the first week of February when the Treasury bill interest rates for the 91-day, 182-day and 364-day Treasury bills were at an average rate of 20.72 percent compared to an average of 11.75 percent last week.