T-Bills Oversubscribed as the Market Remains Relatively Liquid

During the week, T-bills were oversubscribed for the second week running according to the weekly Cytonn Report, with overall subscription coming in at 174.5 percent compared to 167.4 percent recorded the previous week.

Subscription rates for the 91, 182 and 364-day papers came in at 44.0, 298.6 and 137.4 percent compared to 93.4, 255.6 and 128.6 percent recorded the previous week respectively.

The 91-day paper continues to witness undersubscription as investors express preference for the 182 and 364-day papers which continue to offer investors higher returns on a risk-adjusted basis as compared to the 91-day paper.

Given the possible upward pressures on interest rates, we maintain our recommendation for investors to be biased towards short-term fixed income instruments.

Yields on the 91, 182 and 364-day T-bills remained relatively unchanged during the week, closing at 8.7, 10.5 and 10.9 percent from 8.7, 10.6 and 10.9 percent respectively the previous week.

The Central Bank has remained disciplined in maintaining rates and we have seen the market respond to this with the current acceptance rate at 34.3, 258.4 and 100.1 for the 91-day, 182-day and 364-day papers respectively.

The market remained relatively liquid during the week as can be seen by the huge treasury bills subscriptions amounting to 27.9 billion shillings. The high liquidity was as a result of an increase in government payments and T-bill redemptions which came in at 59.7 billion shillings and 23.7 billion shillings from 35.7 billion shillings and 12.8 billion shillings respectively the previous week.

The high liquidity led to an increase in deposits placement by commercial banks with the Central Bank, which amounted to 40.2 billion shillings in the week. The increased liquidity in the market from government payments saw the average interbank rate decline by 40 bps to 6.8 percent from 7.2 percent recorded the previous week while the volumes transacted increased to 16.5 billion shillings from 15.8 billion shillings transacted the previous week. The interbank rate is often determined by the liquidity distributions within the banking sector as opposed to the net liquidity position in the interbank market.