During the first half of 2018, T-bills auctions recorded an oversubscription, with the average subscription rate coming in at 142.6 percent compared to 263.2 percent in H1’2017.
Overall average subscription rates for the 91, 182, and 364-day papers in H1’2018 came in at 105.6 percent, 122.3 percent, and 177.7 percent, respectively, from 154.0 percent, 184.5 percent, and 131.2 percent, in a similar period in 2017.
Yields on T-bills declined by 40 bps, 90 bps and 70 bps in H1’2017, closing at 7.7 percent, 9.7 percent, and 10.5 percent, from 8.1 percent, 10.6 percent, and 11.2 percent for the 91, 182, and 364-day papers, respectively, at the end of 2017, mainly due to the Central Bank of Kenya’s (CBK’s) efforts to keep rates low by rejecting expensive bids in the auction market.
According to Cytonn Investment’s H1’2018 Markets Review, T-bills were oversubscribed at a subscription rate of 126.0 percent during the week, down from 214.7 percent recorded the previous week.
The report further states that yields on the 91- day and 364- day papers remained unchanged at 7.7 percent and 10.5 percent, respectively while yields on the 182-day paper declined to 9.6 percent from 9.7 percent, the previous week, as T-bill yields continue to decline.
The acceptance rate declined to 88.5 percent from 98.8 percent, the previous week, with the government accepting 26.8 Billion shillings of the 30.2 Billion Shillings worth of bids received.
The yield on the 91-day T-bill is currently at 7.7 percent, below its 5-year average of 9.1 percent.
The lower yield on the 91-day paper is mainly attributed to the low-interest rate environment we have been experiencing, and Cytonn expects this to continue in the short-term because the rate cap is still in place which will make it easier for the government to borrow from the domestic market, as institutions will continue channeling funds more actively towards government securities deemed less risky, since the pricing of loans to the private sector is based on the Central Bank Rate as opposed to their risk profiles.
Furthermore, the government domestic borrowing requirement for the 2018/19 financial year has been reduced by 8.6 percent, with revenues expected to increase by 14.5 percent from the previous fiscal year.