Treasury Bill Subscriptions Declined in April- Cytonn Report

Treasury bill subscriptions declined during the month of April with overall subscriptions at 186.2% compared to 192.3% in March. Yields on T-bills declined by 40 bps, 20 bps and 20 bps for the 91-day, 182-day and 364-day bills, respectively, closing the month at 8.6%, 10.5% and 11.7%, down from 9.0%, 10.7% and 11.9%, respectively, at the end of March 2016. Yields have remained relatively stable on account of:

• Government being ahead of its domestic borrowing target of Kshs 219.0 bn which has eased up pressure on interest rates, and,
• Increased liquidity as evidenced by the decline in the interbank rate to 3.9% at the end of April, from 4.4% in March, as a result of:

1. T-bill and T-bond maturities of Kshs 53.6 bn,
2.  reverse repo purchases of Kshs 38.6 bn,
3. government payments of Kshs 106.5 compared to Kshs 122.0 bn in March.

Last week, treasury bills subscription levels remained high, coming in at 269.5%, although lower compared to 307.2% the previous week on the back of high liquidity in the money markets. Subscription rates for the 91, 182 and 364-day T-bills remained high at 416.4%, 271.3% and 169.7%, respectively, compared to 563.0%, 292.5%, and 151.4% the previous week, respectively.

Yields for the 91-day, 182-day and 364-day came in at 8.6%, 10.5% and 11.7% from 8.8%, 10.7% and 11.8% last week, respectively, with the rate of decline in yields decreasing week on week, indicating the bottoming out of interest rates at the current level. The reduced subscription rates also indicate the “flight to safety” sparked by the Chase Bank failure is abating. The chart below shows the 91-day T-bill rates for the past 16 months, with yields trading below the 16-month average:

During the month, the government issued a 5-year FXD 1/2016/5 bond to raise Kshs 20.0 bn for budgetary support and accepted Kshs 19.5 bn at 14.3%, 39 bps higher than the re-opened 5-year FXD 1/2015/5 bond issued in February. The slightly higher rate is due to financial risks associated with financial markets during the month. Activity in the secondary market was lower than the previous month with bond turnover declining by 39.0% to Kshs 37.3 bn, from Kshs 61.1 bn in March. The FTSE bond index has gained 2.1% YTD, which is attributable to the declining yields during the month.

Article by Juma Fred.