Nairobi, May 24 -- Returns on Treasury bills and bonds have started increasing as investors seek higher compensation to cover rising inflation, setting the stage for higher borrowing costs for the government.

Interest on the 91-day has increased to 8.3865 percent from 7.4261 percent at the end of March, while returns on the 10-year bond are up to 9.5 percent from 8.85 percent on April 21.

The rising returns on government papers are prompting investors to start shifting assets from the Nairobi Securities Exchange (NSE), which has seen three-quarters of counters at the bourse record a drop in share prices.

The volatile environment has been marked by shocks from the Iran war, which has seen investors cut demand for equities in favour of a...