Under subscription of Treasury bills continued during the week, with total subscriptions declining to 42.1%, compared to last week’s 79.8% subscription rate as most investors were focused on the two-year bond, and as the market liquidity remained low. Yields increased on the 91-day and 182-day paper to 11.6% and 12.3%, respectively, from 11.5% and 11.9% the previous week. Yields on the 364-day remained flat at 13.0%.
As stated in our Cytonn report #32, investors demand for higher premium saw yields on the reopened two-year bond increase from June’s 12.6% to 14.8%, with the average market bid rate at 17.0%. Of importance is that investors who invested in the bond in June have had a more than 1% capital loss on the invested amounts. Total subscriptions amounted to 97% of the Kshs 20 bn on offer, intimating to investors preference to lock in attractive yields.
As we indicated in our last week’s report, there was improved liquidity in the market, which saw the interbank rate consequently decline from last week’s close of 22.9% to 15.3%. As a result of this improved liquidity, the shilling weakened 1.3% to close at 103.5 against the dollar. In our view, the current decline of the shilling can be attributed to:
- Improved liquidity in the market leading to speculative positions against the shilling;
- Global dollar strength given the impending rate hike in the US;
- Kenyan Government’s increased appetite for dollar denominated debt which has resulted in increased demand for the greenback, and;
- Structural challenges, including a widening current account and fiscal deficit, which have left the shilling fundamentally weak.
We continue to maintain our recommendation that investors should be biased towards short-term fixed income instruments due to uncertainty of rates in the current environment.
Excerpt from The Cytonn Report