Last Week’s T-Bills Undersubscribed On account of Tight Liquidity

T-bills were undersubscribed last week, with the overall subscription rate coming in at 57.4 percent, a decline from 60.4 percent recorded the previous week.

The under subscription was attributed to tight liquidity, which the Central Bank of Kenya (CBK) attributed to seasonal low government spending at the beginning of the fiscal year.

Yields on the 91-day paper increased by 10 bps, to 7.7 percent from 7.6 percent the previous week, while yields on the 182-day paper declined by 10 bps to 9.0 percent from 9.1 percent the previous week.

The yield on the 364-day paper remained unchanged at 10.0 percent. The acceptance rate for T-bills remained unchanged at 96.8 percent, with the government accepting 13.3 billion shillings of the 13.8 billion shillings worth of bids received.

The subscription rate for the 91-day and 364-day papers improved to 15.1 percent and 111.1 percent from 14.2 percent and 87.9 percent the previous week, respectively, while the subscription rate for the 182-day paper declined to 20.5 percent from 51.5 percent the previous week.

The 364-day paper continued to record the highest performance attributed to the scarcity of newer short-term primary bonds, as the government has been issuing longer-tenor bonds in a bid to lengthen its debt maturity profile, leaving investors to settle for the 364-day paper.

For the month of August 2018, the Kenyan Government has issued a new 10-year Treasury bond (FXD 1/2018/10) with a market-determined coupon rate, in a bid to raise 40.0 billion shillings for budgetary support.

The government had been issuing longer-dated bonds in a bid to lengthen the debt maturity profile, which has been declining with the average term to maturity for all government securities hitting 4.4-years as at April 2018.

The government has not achieved much in lengthening their liability profile mainly due to the poor performance of the longer-dated bonds in the auction market.

The low performance has been attributed to the relatively flat yield curve on the long-end, making it relatively unattractive to hold longer-term bonds considering the current uncertainties in the interest rate environment.