Falling inflation, stable economy push down money market yields

THE steady decline in short-term government securities and money market fund rates continues to mirror the impact of easing inflation and a stabilising economy.

The Kenya National Bureau of Statistics last week reported that the economy expanded by five per cent in the second quarter of 2025, up from 4.6 per cent in the same period last year. The growth was attributed to a rebound in industrial activity, resilience in key service sectors, and steady agricultural performance.

This stronger macroeconomic environment has led to lower yields on short-term investments such as Treasury Bills, a key component of MMF portfolios.

Data from the Central Bank of Kenya shows that the October 2 Treasury Bill auction attracted bids worth Sh15.1 billion against an advertised Sh24 billion, representing a 63.1 per cent performance rate — a sharp drop from 95.7 per cent the previous week.

The under-subscription reflected waning investor appetite following falling yields. The 91-day paper recorded the highest demand but still dropped to 40.5 per cent, while the 182-day paper fell further to 19.4 per cent.

This left the government in a net borrowing position of Sh5.14 billion, underlining its continued need for short-term funding.

Despite the decline in yields, some MMFs have shown resilience through strategic asset management. Old Mutual’s Money Market Fund maintained a strong average yield of 10.61 per cent, up from 10.56 per cent, translating to a net return of nine per cent.

The firm’s performance coincided with the launch of Thrive, a digital wellness platform addressing Kenya’s rising physical, mental, nutritional, and financial health challenges.

According to the Ministry of Health, workplace burnout costs Kenya over Sh50 billion in lost productivity each year, while mental health issues drain another Sh62.2 billion, equivalent to 0.6 per cent of GDP. Nearly 3.7 million Kenyans live with stress-related conditions, heightening demand for such interventions.

At the Nairobi Securities Exchange, all major indices posted weekly gains, with the NASI, NSE 25, and NSE 20 rising 0.65 per cent, 0.92 per cent, and 1.04 per cent respectively.

Market capitalisation also grew by 0.65 per cent, though share volumes and equity turnover declined sharply by 40.48 per cent and 63.53 per cent, signaling cautious investor sentiment amid shifting yield dynamics.