T-Bill Subscription Hits 156.9% Due To Favorable Liquidity Conditions

T-bills recorded an over-subscription last week, with the performance rate rising to 156.9 percent from 90.9 percent recorded the previous week.

The oversubscription of T-Bills last week is attributable to favorable liquidity conditions in the money market during the week following the end of the monthly Cash Reserve Requirement (CRR) cycle.

The yields on the 91-day, 182-day, and 364-day papers declined by 4.9 bps, 4.6 bps, and 3.0 bps to 6.8, 8.3, and 9.4 percent respectively.

The acceptance rate for T-bills dropped to 63.5 percent from 89.4 percent the previous week, with the government accepting 23.9 billion shillings of the 37.6 billion shillings worth of bids received.

The subscription rate for the 91-day, 182-day, and 364-day papers rose to 76.7, 79.6 and 266.2 percent from 16.9, 61.4 and 149.9 percent recorded the previous week, respectively, with investors’ participation remaining skewed towards the longer dated paper.

The demand for the longer-dated paper is attributable to the scarcity of newer short-term bonds in the primary market.

For the month of March, the Kenyan Government has issued a 25-year Infrastructure Bond issue no: IFB, 1/2019/25 with a coupon rate of 12.2 percent, which is the longest infrastructure bond issue in history, in a bid to raise 50.0 billion shillings for partial funding of infrastructure projects in the transport, water and energy sectors.

The long tenor of the bond is in line with the CBK’s objective of lengthening the maturity profile of public debt in order to reduce refinancing risk.

Despite IFB’s historically recording higher subscription rates than other Treasury Bonds due to the tax-free incentive translating to higher investment yields, “we do not expect the issue to generate significant interest due to duration risk associated with long-term papers. We expect the weighted average of accepted bids to come in at 12.5 – 12.7 percent,” says experts from Cytonn Investments.

Related Content

• T-Bills Under-subscribed During The Week as Interbank Rate Decreases
• T-bills Remain Over-subscribed as Interbank Rate Hits 1.9 pc

The Interbank Rate

The average interbank rate rose marginally to 3.9 percent from 3.8 percent the previous week, while the average volumes traded in the interbank market declined by 72.4 percent to 2.8 billion shillings from 10.3 billion shillings the previous week.

Despite the marginal rise in the inter-bank rate, liquidity conditions remained favorable following the end of the monthly Cash Reserve Requirement (CRR) cycle and driven by government payments.

The Eurobond

According to Bloomberg, the yield on the 10-year and 5-year Eurobonds issued in 2014 declined by 0.3 percentage points and 0.1 percentage points to 6.3 percent and 4.1 percent from 6.6 percent and 4.2 percent the previous week, respectively.

Since the mid-January 2016 peak, yields on the Kenyan Eurobonds have declined by 4.7 percentage points and 3.3 percentage points for the 5-year and 10-year Eurobonds, respectively, an indication of the relatively stable macroeconomic conditions in the country.

For the February 2018, Eurobond issue, during the week, the yields on both the 10-year and 30-year Eurobonds declined by 0.3 percentage points and 0.4 percentage points to 7.1 percent and 8.1 percent from 7.3 percent and 8.5 percent the previous week, respectively.

Since the issue date, the yields on both the 10-year and 30-year Eurobond have declined by 0.2% points.