Fixed-income investors are being advised to be biased towards short-to medium term fixed income instruments to reduce duration risk.
According to Cytonn Investments, “Rates in the fixed income market have remained stable, and we expect this to continue in the short-term. However, a budget deficit that is likely to result from depressed revenue collection creates uncertainty in the interest rates environment as any additional borrowing in the domestic market to plug the deficit could lead to upward pressures on interest rates.”
Last week, T-bills were undersubscribed, with the overall subscription rate coming in at 66.0 percent, compared to 72.6 percent recorded the previous week, due to relatively tight liquidity in the money market, as a result of transfer of taxes by banks amounting to Kshs 32.8 bn that fell due on 20th November.
“Liquidity in the money market was tight during the week, with a net liquidity injection of Kshs 2.2 bn, compared to a net injection of Kshs 1.8 bn the previous week. The CBK was active in the Repo market, injecting Kshs 3.1 bn through Reverse Repo Purchases in a bid to counter the tight liquidity,” observes Cytonn Investment Analysts.
The subscription rates for the 91, 182 and 364-day papers came in at 108.4 percent, 48.6 percent, and 66.5 percent compared to 44.2 percent, 91.1 percent and 65.6 percent, respectively, the previous week.
Yields on the 91, 182 and 364-day papers remained unchanged at 8.0 percent, 10.5 percent and 11.0 percent, respectively.
The overall acceptance rate came in at 96.6 percent, compared to 99.4 percent the previous week, with the government accepting a total of Kshs 15.3 bn of the Kshs 15.9 bn worth of bids received, against the Kshs 24.0 bn on offer.
However, the overall subscription rate for the 7-year amortized Infrastructure Bond (IFB 1/2017/7), issue came in at 153.0 percent, with the market average bid rate coming in at 12.3 percent, slightly above the accepted rate of 12.2 percent, and higher than the 11.4 percent after-tax yield on a similar tenor bond trading in the secondary market.
The government accepted Kshs 42.0 bn out of the Kshs 45.9 bn worth of bids received, translating to an acceptance rate of 91.5 percent..