The lowering of returns on government debt securities is fast driving down the yields on unit trusts and Treasury bills to single digits.
The return on the 91-day Treasury bill fell below nine percent for the first time since October 2022 in the latest auction as the cost of government borrowing adjusted to the latest rate cut by the Central Bank of Kenya (CBK).
The 91-day T-bill was auctioned at an interest rate of 8.9697 percent last week, down from 9.1156 in the previous sale.
Because fund managers primarily invest in fixed deposit accounts and government papers, the decline in their returns has forced a subsequent fall in yields for money market funds.
Data from eleven top fund managers show that between December 31, 2024 and February 14, 2025, there was a drop in yield rate of up to a few percentage points.
Arvocarp, one of the latest money market funds to enter the Kenyan market was offering a return of 15.11 percent on December 31, 2024 but this had declined to 13.11 percent on February 13, 2025.
Sanlam also registered significant drop, from 13.98 percent to 12.67 percent over the same period.
Returns at Nabo Capital fell from 13.12 percent to 11.88 percent while those at Etica declined from 16.25 percent to 15 percent.
Lofty Corban’s was down from 16.38 percent to 15.17 percent, ICEA’s fell from 12.84 percent to 11.97 percent while CIC’s dropped from 12.67 percent to 12 percent. Others that saw their offered returns decline include Kuza and Old Mutual.
Analysts say investors in money market funds should expect lower returns this year compared to 2024, adding that these vehicles are still delivering on their promise of providing liquidity and competitive returns in the short-term.
“You should be very comfortable, if you are investing in a money market fund and the yields are trending downwards. Money market funds are supposed to track the interest rates,” Anthony Mwithiga, Managing Director, Old Mutual Investment Group told the Business Daily at a recent event.
“In 2025, we expect the money market funds to trend below 10 percent, and that’s a good thing. Remember the purpose of a money market fund is to give you a short-term investment opportunity to manage liquidity to accumulate cash and finance your medium and long-term investments. It’s not a permanent home for your money.”
