T-Bills Dip During The Week As Government Seeks Ksh 40Bn For Budgetary Support

Last week, T-bills were under-subscribed with the overall subscription rate coming in at 63.7 percent, a decline from 120.9 percent recorded the previous week.

The subdued uptake of T-bills last week was despite improved liquidity during the week, as evidenced by the declined interbank rate, which hit a 3-month low at 3.4 percent as at 9^th October 2018.

Analysts at Cytonn Investments attribute the low uptake to investors eyeing the ongoing 15-year tenor primary bond sale that closes this coming week on 16^th October 2018.

The yields on the 91-day and 364-day papers remained unchanged at 7.6 percent and 9.6 percent respectively, while the yield on the 182-day paper declined by 10 bps to 8.5 percent from 8.6 percent the previous week.

The acceptance rate for T-bills improved to 99.3 percent from 80.8 percent the previous week, with the government accepting 15.2 billion shillings of the 15.3 billion shillings worth of bids received, against the 24.0 billion shillings on offer.

The subscription rate for the 91-day paper increased to 157.6 percent from 98.5 percent the previous week, while the subscription rate for the 182-day and 364-day papers declined to 26.4 percent and 63.4 percent from 65.4 percent and 185.3 percent recorded the previous week, respectively.

New Bond

For the month of October, the Kenyan Government has issued a new bond; issue no FXD 2/2018/15, with 15.0-years to maturity, and a coupon rate of 12.75 percent.

The government will be seeking to raise 40.0 billion shillings for budgetary support. The issuing of the longer-term bond is in a bid to lengthen the average time to maturity for the Kenyan Government’s debt portfolio.

The Central Bank of Kenya (CBK), in their Financial Sector Stability Report 2017, identified the continued shortening of debt maturities as posing potential rollover risks in the medium term if the trend is not reversed, having reduced to 4.1-years as at the end of 2017, from 4.5-years at the end of 2016, and highs of 8.9-years as at 2010.

The issuance of medium to long-term securities have however been having a lackluster performance, which we attribute to the saturation of long end offers, with the last relatively shorter paper with a 5-year tenor having been offered in March, leading to a relatively flat yield curve on the long-end.

Given that the Treasury bonds with the same tenor are currently trading at a yield of 12.6%, we expect bids to come in at between 12.6 percent and 12.8 percent.