Last Week in Focus: Overall Treasury Bills Subscription Reduces to 154.6 Percent

During the week, Treasury bills were oversubscribed but overall subscription decreased to 154.6 percent, compared to 160.7 percent recorded the previous week.

Subscription rates decreased with the 91-day and 364-day papers coming in at 117.1 percent and 102.9 percent from 151.0 percent, and 126.5 percent, respectively, the previous week, while the subscription rate for the 182-day paper increased to 231.3 percent from 201.2 percent, the previous week.

The 182-day paper remains the most subscribed as it offers the highest effective return on a risk-adjusted basis especially given that its yield is marginally the same as the 364-day T-bill. Yields on Treasury bills were relatively unchanged with the 91-day, 182-day and 364-day papers coming in at 7.7 percent, 10.3 percent and 10.4 percent from 7.8 percent, 10.3 percent and 10.3 percent, respectively from previous week.

The 91-day T-bill is currently trading below its 5-year average of 10.4 percent. The downward trend for the 91-day paper is mainly attributed to the expected low interest rate environment following the operationalization of the Banking Act Amendment 2015 which has led to more liquidity in the market and also due to reduced pressure from the government borrowing program as they are currently ahead of the pro-rated domestic borrowing target of 70.6 billion shillings having borrowed 108.9 billion shillings.

According to Bloomberg, yields on the 5-year and 10-year bond were stable week on week at 4.5 percent and 7.2 percent, respectively. Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 4.3 percent points and 2.5 percent points, respectively for the 5-year and 10-year bond, on account of improving macroeconomic conditions. This is an indication that Kenya remains an attractive investment destination.

The Kenya Shilling remained stable against the dollar during the week to close at 101.4 shillings from 101.3 shillings the previous week, on account of demand by importers in the energy sector being matched by dollar inflows from offshore investors participating in government treasury auctions. On a year to date basis, the shilling has appreciated by 0.9 percent against the dollar.

Read more from Cytonn Investments’ Report here.