T-Bill Subscription Spikes during the Month of February As March Kicks Off on a Low Tone

During the month of February, T-bill auctions recorded an oversubscription, with the overall subscription rate coming in at 152.6 percent, a decline from 187.7 percent recorded in January.

The subscription rates for the 91-day, 182-day, and 364-day papers came in at 98.1, 115.8 and 211.3 percent lower than the 173.0, 141.0 and 240.2 percent registered in the previous month.

The yields on the 91-day declined by 0.1 percentage points to 7.0 percent from 7.1 percent the previous week.

The 182-day and 364-day papers declined by 0.4 percentage points to 8.4 percent and 9.5 percent from 8.8 percent and 9.9 percent the previous week, respectively.

The T-bills acceptance rate came in at 78.3 percent during the month, compared to 66.8 percent recorded in January, with the government accepting a total of 114.7 billion shillings of the 146.5 billion shillings worth of bids received.

The Central Bank of Kenya (CBK) remained disciplined in rejecting expensive bids in order to ensure the stability of interest rates.

T-Bill Subscription Last Week

During the week, T-bills recorded an under-subscription, at a subscription rate of 78.2 percent, down from 104.6 percent the previous week.

The decline in the subscription is partly attributable to the waning liquidity in the money market during the week.

The yields on the 91-day and 182-day papers both declined by 0.2 percent to 6.9 percent and 8.3 percent respectively, while the 364-day papers declined by 0.2 percent to 9.5 percent.

The acceptance rate declined to 90.0 percent from 91.2 percent, recorded the previous week, with the government accepting 16.9 billion shillings of the 18.8 billion shillings worth of bids received.

The 91-day T-bill is currently trading at a yield of 6.9 percent which is below its 5-year average of 8.8 percent. The lower yield on the 91-day paper is mainly attributable to the low-interest-rate environment that has persisted since the passing of the law capping interest rates.

Analysts say the T-Bill subscription will be sustained by the discipline of the CBK in stabilizing interest rates in the auction market by rejecting aggressive bids that are priced above market, for both T-bills and T-bonds.

T-Bills will also be cushioned by the maintaining of the Central Bank Rate at 9.0 percent by the Monetary Policy Committee in their January meeting.

Government Re-opened Bonds

During the month, the government reopened two bonds issued in January; issue number FXD 1/2019/2 and 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 an additional 12.0 billion shillings from the 40.0 billion shillings on offer in January for budgetary support.

The 2.0-year and 15.0-year reopened bond issues were over-subscribed with an overall subscription rate of 555.0 percent with bids worth 66.6 billion shillings received against the 12.0 billion shillings on offer.

The 2-year bond had a better performance with total bids of 50.2 billion shillings compared to 16.4 billion shillings worth of bids for the 15-year bond, an indication of the high demand in the shorter-end of the yield curve.

The government accepted 23.4 billion shillings out of the 66.6 billion shillings worth of bids received, translating to an acceptance rate of 35.2 percent indicating that bids were largely not within ranges the Central Bank of Kenya (CBK) deemed acceptable.

The average accepted yield for the 2-year and 15-year issue came in at 10.7 percent and 12.9 percent, respectively.

The Government also 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.

For the month of March, the Government has issued a new bond; issue number IFB 1/2019/25 with a tenor of 25.0-years and a coupon rate of 12.2 percent in a bid to raise 50.0 billion shillings for partial funding of infrastructure projects in the transport, water and energy sectors.