T-Bills Subscription Hits 170% On Account of Improved Liquidity

T-bills were over-subscribed last week, with the overall subscription rate coming in at 170.2 percent, an increase from 161.4 percent recorded the previous week.

The over-subscription in all the auctions since the beginning of the year has partly been attributed to the improved liquidity in the market, driven by debt maturities as well as government payments.

There was a mixed performance in subscription rates across the board with the 91-day and 182-day papers falling to 123.8 and 107.3 percent from 180.8 and 138.8 percent recorded the previous week.

The 364-day paper subscription rates improved to 251.7 percent from 176.2 percent recorded the previous week.

The yields on the 91-day paper remained unchanged from the previous week at 7.1 percent while yields on the 182-day and 364-day papers declined to 8.8 and 9.9 percent from 8.9 and 10.0 percent.

The acceptance rate declined to 65.0 percent from 73.6 percent recorded the previous week, with the government accepting 26.5 billion shillings of the 40.8 billion shillings worth of bids received.

The Issuance of Two Bonds

Last week, the Kenyan Government issued two bonds; issue number FXD 1/2019/2 and issue number FXD 1/2019/15, with tenors of 2.0-years and 15.0-years, both with market-determined coupon rates.

The government was seeking to raise 40.0 billion shillings from the two bonds for budgetary support.

The two bond issues were over-subscribed with an overall subscription rate of 254.9 percent with bids worth 102.0 billion shillings received against the 40.0 billion shillings on offer.

The 2-year bond had a better performance with total bids of 76.9 billion shillings compared to 25.1 billion shillings worth of bids for the 15-year bond, an indication of the high demand in the shorter-term papers.

The government accepted 38.5 billion shillings out of the 102.0 billion shillings worth of bids received against 40.0 billion shillings on offer, translating to an acceptance rate of 37.7 percent, indicating that bids were largely not within ranges the CBK deemed acceptable.

The average accepted yield for the 2-years and 15-years issue came in at 10.7 and 12.9 percent respectively. “This was within the target of our expectation of between 10.7 – 10.9 percent and 12.6 – 12.9 percent for the 2-year and 15-year bonds, respectively.”

“We are of the view that the continued issuance of medium to long-term domestic securities is well guided as lengthening the average maturity will reduce the potential rollover risks in the medium term,” said analysts from Cytonn Investments in their weekly report.

The issuance of medium to long-term securities have however been having a lackluster performance, which analysts attribute to the saturation of long-end offers, leading to a relatively flat yield curve on the long-end.

The government will need to offer more incentive for long-term bonds by increasing the yields to attract investors.

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