T-Bills Undersubscribed to 72.6 Percent From 106.1 Percent

During the week, T-bills were undersubscribed, with the overall subscription rate coming in at 72.6 percent compared to 106.1 percent recorded the previous week due to relatively tight liquidity in the money market.

The subscription rates for the 91, 182 and 364-day papers came in at 44.2, 91.1, and 65.6 percent respectively compared to 171.3, 58.2 and 127.9 respectively the previous week.

Yields on the 91, 182 and 364-day papers remained unchanged at 8.0, 10.5 and 11.0 percent respectively.

The overall acceptance rate came in at 99.4 percent compared to 93.7 percent the previous week with the government accepting a total of 17.3 billion shillings of the 17.4 billion shillings worth of bids received against the 24.0 billion shillings on offer in this auction.

The government is still behind its domestic borrowing target for the current fiscal year, having borrowed 50.4 billion shillings against a target of 157.8 billion shillings (assuming a pro-rated borrowing target throughout the financial year of 410.2 billion shillings budgeted for the full financial year as per the Cabinet-approved 2017 Budget Review and Outlook Paper (BROP).

Liquidity in the money market tightened during the week, with a net liquidity injection of 1.8 billion shillings compared to a net injection of 9.1 billion shillings the previous week.

The CBK was active in the Repo market, injecting 1.3 billion shillings through Reverse Repo Purchases in a bid to counter the tight liquidity. The average interbank rate declined slightly to 8.6 percent from 8.8 percent recorded the previous week, while the average volumes traded in the interbank market decreased by 17.7 percent to 25.6 billion shillings from 31.1 billion shillings the previous week.

Of note is that this week, banks’ holding of excess liquidity stood at 4.4 billion shillings above the 5.25 percent requirement, from 2.1 billion shillings the previous week.

There was T-bill rediscounting of 3.7 billion shillings which indicates that there are some players that faced significant liquidity challenges since rediscounting is very punitive and is usually done at the prevailing yields plus 3.0 percent points thus making the value of the discounted T-bills much lower than their market value.