T-Bills Undersubscribed During the Week As Government Reopens the 15-Year Bond

During the week, T-bills were undersubscribed, with overall subscription coming in at 74.9 percent compared to 60.8 percent recorded the previous week, on account of tight liquidity in the money market according to a weekly report by Cytonn Investments

Despite the low subscription rate, the government acceptance rate was low at 52.7 percent, compared to 89.8 percent the previous week. Subscription rates on the 91, 182 and 364-day papers came in at 86.2, 93.7 and 48.7 percent respectively from 86.8, 40.2 and 64.2 percent respectively as witnessed the previous week.

Yields on the 91, 182 and 364-day T-bills remained unchanged during the week, closing at 8.6, 10.5 and 11.0 percent respectively, as the government turned away expensive money, evidenced by the average bid rates for the 182-day and 364-day papers that came in at 10.6 and 11.1 percent respectively.

There has been a shift by investors on the subscription, with most investing in the 91-day and 182-day papers, an indication of the uncertainties in the interest rates environment. The 182-day paper continues to offer investors the best returns on a risk-adjusted basis and hence received the highest subscription level this week.

The Interbank rate

The interbank rate decreased by 20 bps to 7.5 percent from 7.7 percent registered the previous week. The rate has been high since the jump in December, where it reached a high of 8.7 percent from 3.8 percent at the start of November. The volumes transacted have equally been high, averaging about 23.1 billion shillings compared to 20.0 billion shillings the previous week.

Liquidity in the money market has been tight and last week there was a net liquidity reduction of 4.0 billion shillings which was driven by reduced reverse repo purchases and government payments that came in at 9.5 billion shillings and 23.7 billion shillings respectively from 18.6 billion shillings and 30.9 billion shillings the previous week respectively.

To further explain the tight liquidity position, there was:

• Increased activity in the reverse repo market at a rate of 10.0 percent
• T-bill rediscounting worth 4.9 billion shillings.

Usually the T-bill rediscounting rate is punitive to investors as it is calculated at 3.0 percent higher than the prevailing interest rate.

Below is a summary of the money market activity during the week:

The 15-Year Bond

The government has re-opened the 15-year bond it issued in 2007, in a bid to raise 30.0 billion shillings for budgetary support, which will see investors participate up until 24^th January 2017.

According to Bloomberg, the yield on the 10-year Eurobond remained unchanged from the previous week at 7.3 percent whereas that of the 5-year Eurobond decreased week on week by 10 bps to 4.2 percent down from 4.3 percent the previous week. Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 4.6 percent points and 2.3 percent points, respectively, for the 5-year and 10-year bond due to improving macroeconomic conditions. This is an indication that Kenya remains an attractive investment destination as shown below: