February Characterized by High T-bill Subscriptions

The month of February was characterized by high T-bill subscriptions, with the overall subscription rate increasing to 177.5 percent from 68.5 percent recorded in January.

During the month, investor preference shifted away from the 91-day paper, which witnessed low levels of subscription, and was skewed towards the 182 and 364-day papers, which offered investors higher returns on a risk-adjusted basis.

This was evidenced by the subscription rates for the 91, 182 and 364-day papers, which came in at 67.8, 316.8 and 111.2 percent respectively compared to 95.3, 69.5 and 44.9 percent the previous month respectively.

Yields on T-bills were relatively unchanged during the month of February closing at 8.6, 10.5 and 10.9 percent respectively from 8.7, 10.5 and 10.9 percent for the 91, 182 and 364-day papers respectively at the end of the month of January.

The Central Bank of Kenya (CBK) on the other hand has remained disciplined in stabilizing interest rates in the auction market by rejecting bids that CBK considers above market as seen in how the market has responded to this with the overall bids acceptance rate in the month February rising to 84.2 percent compared to 66.1 percent recorded in January.

Carrying forward the February trend, during the first week of March, T-bills were oversubscribed for the fifth week running, with overall subscription coming in at 209.5 percent compared to 185.4 percent recorded the previous week with the subscription rate on the 91 and 364-day papers increasing to 147.4 percent and 57.4 percent from 96.2 percent and 17.7 percent respectively while that of the 182-day paper decreased slightly to 403.0 percent from 412.5 percent the previous week.

Yields on the 91, 182 and 364-day T-bills remained relatively unchanged during the week, coming in at 8.6, 10.5 and 10.9 percent respectively. While the 91-day T-bill is currently trading below its 5-year average of 9.9 percent.

The lower yield on the 91-day paper is mainly attributed to the low interest rates environment the market has been experiencing given the Central Bank (CBK) has remained disciplined in stabilizing interest rates in the auction market by rejecting bids that CBK considers above market.

However, as indicated previously, despite the current low interest rates environment, there exists possible upward pressure on interest rates as:

• the government having only borrowed 123.5 billion shillings of the budgeted foreign borrowing, representing 26.7 percent of its foreign borrowing target of 462.3 billion shillings the balance of which it will most likely plug from the domestic market.
• the Kenya Revenue Authority (KRA) having already missed its first half of 2016/17 fiscal year revenue collection target by 3.2 percent leading to increased borrowing to meet expenditure requirements.

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