Markets Bloom As T-Bills Are Over-subscribed At 161.4%

T-bills were over-subscribed last week, with the overall subscription rate coming in at 161.4 percent, a decline from 281.6 percent recorded the previous week.

The continued over-subscription of the T-Bills has been attributed to favorable liquidity conditions in the interbank market, despite slight tightening towards the close of the week, due to the start of the new cash reserve requirement (CRR) cycle, as well as tax payments due on 20th of every month.

There was a decline in subscription rates across the board for the 91-day, 182-day, and the 364-day papers, with subscription rates falling to 180.8, 138.8 and 176.2 percent from 355.8, 244.6 and 288.8 percent recorded the previous week.

The yields on the 91-day paper declined to 7.1 percent from 7.2 percent recorded the previous week, while yields on the 182-day and 364-day papers remained unchanged from the previous week at 8.9 percent and 10.0 percent.

The acceptance rate rose to 73.6 percent from 72.4 percent recorded the previous week, with the government accepting 28.5 billion shillings of the 38.7 billion shillings worth of bids received.

For the month of January, the Kenyan Government has issued two new bonds; issue no FXD 1/2019/2 and issue no FXD 1/2019/15, with 2.0-years and 15.0-years to maturity, and market-determined coupon rates.

The government will be seeking to raise 40.0 billion shillings from the two bonds for budgetary support, whose issue will close on 22nd January 2019.

The long-term bonds already issued in the FY’2018/2019 in a bid to lengthen the average time to maturity for the Kenyan Government’s debt portfolio and mitigate the potential rollover risks have continued to record a lackluster performance due to the saturation of long end offers.

“Due to this, we are of the view that the government is issuing the shorter-term 2-year bond in a bid to catch up with its borrowing schedule due to the pent-up in demand for the shorter-term papers, which has seen T-bills over-subscribed in all the 2019 auctions,” said analysts from Cytonn Investments.

Treasury bonds with the same tenor (2.0-years and 15.0-years) are currently trading at a yield of 10.7 percent and 12.6 percent respectively.

“We expect bids to come in at between 10.7 – 10.9 percent and 12.6 – 12.8 percent for the 2-year and 15-year bonds, respectively,” added Cytonn.