Liquidity in the money market continued to stifle secondary market activity with “closed” trades slowing down on Wednesday, however secondary market executions were still quite high at 3 billion shillings down from 3.3 billion shillings on Tuesday.
Demand on the 3yr -5yr tenors slowed down considerably due to most banks struggling liquidity-wise, they have been the biggest buyers of these tenors. Demand on the long end, however, was still robust at levels of 13.50 – 13.60 percent as well as on the infrastructure bonds driven mostly by other investors.
The overnight rate continued to rise ending the day at an average of 7.481 percent on volumes of 14.0 billion shillings, despite our expectations it would ease off.
If the current liquidity environment continues we foresee the regulator coming in to inject liquidity through reverse repo to avoid the overnight rate creeping up above the 91-day T-bill rate which currently is at 8.77 percent. The Central bank stayed out of the repo market yesterday sighting a square market.