T-Bills Undersubscribed In October As Government Lags in Domestic Borrowing

T-bills auctions recorded an under subscription during the month of October, with the average subscription level coming in at 48.0 percent compared to 105.7 percent recorded in September, due to tight liquidity in the market.

According to Cytonn Investments Report, the subscription rates for the 91, 182 and 364-day papers came in at 68.1, 35.6 and 52.3 percent respectively from 84.5, 125.7 and 169.0 percent the previous month, respectively.

The yield on the 91-day paper declined to 8.0 percent from 8.1 percent at the end of September, whereas the yield on the 182-day paper increased to 10.4 percent from 10.3 percent and the yield on the 364-day paper remained unchanged at 11.0 percent.

The T-bills acceptance rate came in at 93.5 percent during the month, compared to 92.1 percent in September, with the government accepting 53.8 billion shillings of the 57.6 billion shillings worth of bids received, indicating that bids were largely within ranges the CBK deemed acceptable.

The government is still behind its domestic borrowing target for the current fiscal year, having borrowed 61.0 billion shillings against a target of 142.0 billion shillings (assuming a pro-rated borrowing target throughout the financial year of Kshs 410.2 bn budgeted for the full financial year as per the Cabinet-approved 2017 Budget Review and Outlook Paper (“BROP”)).

For last week, T-bills were undersubscribed with the overall subscription coming in at 69.7 percent, compared to 34.2 percent recorded the previous week. Subscription rate for the 91, 182, and 364-day papers came in at 109.4, 42.1, and 81.4 percent respectively from 12.7, 13.7, and 63.3 percent the previous week respectively.

The drastic increase in the 91-day paper subscription rate can be attributed to the uncertainty in the market with the investors opting to keep short. Yields on the 91, 182 and 364-day T-bills remained unchanged during the week at 8.0, 10.4 and 11.0 respectively. The 91-day T-bill is currently trading below its 5-year average of 9.2 percent.