T-bills Remain Over-subscribed as Interbank Rate Hits 1.9 pc

T-bills remained over-subscribed during the week, with the overall subscription rate coming in at 104.6 percent, a decline from 140.3percent, recorded the previous week.

The decline in subscription is partly attributable to the 5-year and 10-year bond sale that closed during the week.

There was mixed performance, with the 91-day paper recording an increase in subscription rates to 127.6percent, from 121.5percent, recorded the previous week, while the 182-day and 364-day papers recorded declines in subscription to 115.7 percent and 84.3 percent, from 117.1 percent and 170.9 percent, recorded the previous week, respectively.

Cytonn report notes that the yields on the 91-day, 182-day, and 364-day papers declined by 5.3 bps, 10.8 bps and 5.9 bps to 7.0 percent, 8.4 percent, and 9.5 percent, respectively.

The acceptance rate improved to 91.1 percent from 90.9 percent recorded the previous week, with the government accepting 22.9 billion shillings of the 25.1 billion shillings worth of bids received, an indication that bids were largely within ranges the Central Bank of Kenya (CBK) deemed acceptable.

This week, the government issued a 5-year tenor (FXD1/2019/5) and a 10-year tenor (FXD1/2019/10) bond, which recorded an over-subscription of 156.5 percent, mainly attributable to the relatively favorable liquidity conditions.

The yields came in at 11.3 percent and 12.4 percent for the 5-year and 10-year bonds, respectively, in line with our expectations, with the government accepting 53.4 billion shillings out of the 78.3 billion shillings worth of bids received against 50.0 billion shillings on offer, translating to an acceptance rate of 68.2 percent.

READ ALSO T-Bills Over-subscribed During the Week as Interbank Rate Declines

Liquidity

The average interbank rate increased to 1.9 percent from 1.4 percent the previous week, while the average volumes traded in the interbank market declined by 41.6 percent to 10.4 billion shillings, from 17.8 billion shillings the previous week.

The low interbank rate points to improved liquidity conditions, with the rate declining to an 8-year low of 1.2 percent as at 14th February 2019 partly attributed to government payments and net redemption of government securities.

Kenya Eurobonds:

According to Bloomberg, the yields on the 5-year and 10-Year Eurobonds issued in 2014 declined by 0.3 percent points and 0.4 percent points, respectively, to 4.0 percent and 6.2 percent from 4.3 percent and 6.6 percent the previous week.

The continued decline in yields signals improving country risk perception by investors, which is partly attributed to bullish expectations of improved economic growth in 2019 as well as increased Eurobond demand in emerging markets, with a similar trend observed in other Sub-Saharan African Eurobonds, driving the prices up and effectively the yields down. Key to note is that these bonds have 0.3-years and 5.3-years to maturity for the 5-year and 10-year, respectively.