T-Bill Subscription Dips During The Month of October

During the month of October, T-bill auctions recorded an under-subscription, with the average subscription rate coming in at 77.8 percent a decline from 157.5 percent recorded in September.

The average subscription rates for the 91-day, 182-day, and 364-day papers came in at 108.1, 41.8 and 101.7 percent from 170.0, 124.7 and 185.3 percent in the previous month, respectively.

The yields on the 91-day, 182, day and 364-day papers declined by 0.1 percentage points, 0.3 percentage points, and 0.2 percentage points, to 7.5, 8.4, and 9.5 percent from 7.6, 8.7, and 9.7 percent the previous month, respectively.

The T-bills acceptance rate came in at 92.4 percent during the month, compared to 75.9 percent recorded in September with the Kenyan government accepting a total of 86.2 billion shillings of the 93.3 billion shillings worth of bids received, indicating that bids were largely within ranges the Central Bank of Kenya (CBK) deemed acceptable.

During the week, T-bills were oversubscribed, with the overall subscription rate coming in at 106.4 percent, up from 66.8 percent recorded the previous week.

The improved performance was attributed to improved liquidity in the interbank market, evidenced by the declined interbank rate, which recorded a low of 2.0 percent as at 31st October 2018, the lowest since the 1.9 percent recorded in 30th March 2011. The improved liquidity was attributed to increased government payments.

The yields on the 364-day paper remained unchanged at 9.5 percent, while the yields on the 91-day and 182-day papers declined to 7.4 percent and 8.3 percent, from 7.5 percent and 8.4 percent, the previous week, respectively.

The acceptance rate remained unchanged at 100.0 percent from the previous week, with the government accepting 25.5 billion shillings out of the 25.5 billion shillings of bids received.

The subscription rate for the 91-day, 182-day and 364-day papers improved to 128.4, 59.8 and 144.3 percent from 61.0, 30.3 and 105.6 percent the previous week, respectively.

The 91-day T-bill is currently trading at a yield of 7.4 percent, which is below its 5-year average of 9.0 percent. The lower yield on the 91-day paper is mainly attributable to the low-interest-rate environment that has been experienced since the passing of the law capping interest rates.

Economic analysts expect this to continue in the short-term, given the discipline of the CBK in stabilizing interest rates in the auction market by rejecting aggressive bids that are priced above market, for both T-bills and T-bonds.