The average interbank rate increased to 4.1 percent during the month of November from 3.6 percent in October, pointing to declined liquidity during the month, which the CBK attributed to reduced government payments.
During the sessions last week, the average interbank rate increased to 5.9 percent, from 4.7 percent the previous week, while the average volumes traded in the interbank market decline by 17.1 percent to 22.6 billion shillings from 27.3 billion shillings the previous week.
The increase in the average interbank rate points to tight liquidity, attributed to efforts by banks to shore up reserves following the 15.0 billion shillings shortfall recorded the previous week with regard to the 5.25 percent CRR monthly averaging requirement
During the month, the Kenyan Government issued a 20-year infrastructure bond (IFB1/2018/20) at a coupon rate of 11.95 percent, aimed at funding infrastructure projects in the road, water and energy sectors.
The issue was under-subscribed, with the subscription rate coming in at 80.8 percent, with bids worth 40.4 billion shillings received against the 50.0 billion shillings on offer.
The government consequently issued a tap sale on the bond at a yield of 12.2 percent in a bid to raise 22.4 billion shillings and received 8.7 billion shillings a 38.9 percent subscription rate.
The low subscription has been attributed to uncertainty over the interest rate environment that has made investors reluctant to commit to long-term bonds.
During the month, there was also a tight liquidity in the interbank market as evidenced by the rise in the average interbank rate to 4.1 percent in November, from 3.6 percent recorded in October.
Relatively low returns due to the continued decline of yields in the primary auction as the government continues to reject expensive bids. The 20-year bond’s coupon was set at 11.95 percent with the accepted yield coming in at 12.2 percent, which was relatively low compared to the shorter tenor 15-year infrastructure bond issued in January, which had a coupon of 12.5 percent with the accepted yield coming at 12.5 percent.