T-Bills Close Quarter 1 of 2019 on an Oversubscription Note

During the first quarter of 2019, T-bills were oversubscribed, with the overall subscription rate coming in at 157.2 percent up from 74.3 percent in Q4’2018.

The oversubscription was partly attributable to improved liquidity in the market during the quarter, which saw the average interbank rate declining to an average of 3.1 percent from an average of 5.1 percent in Q4’2018, supported by government payments and debt maturities.

Overall subscriptions for the 91, 182, and 364-day papers came in at 110.0, 111.4 and 221.9 percent in Q1’2019, from 107.1, 37.7 and 97.7 percent in Q4’2018, 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.

Yields on the 91-day T-bill rose by 20 bps to close at 7.5 percent in Q1’2019, from 7.3 percent in Q4’2018, while yields on the 182-day and the 364-day T-bills declined by 80 bps and 60 bps to close at 8.2 percent and 9.4 percent from 9.0 percent and 10.0 percent at the end of 2018.

The average acceptance rate for the quarter came in at 73.0 percent down from 91.1 percent recorded in Q4’2018, with the government accepting a total of 330.5 billion shillings of the total bids received during the quarter of 452.7 billion shillings.

T-Bill Subscription during the Week

During the week, T-bills recorded an over-subscription, with the subscription rate coming in at 183.7 percent down from 198.9 percent recorded the previous week.

The oversubscription was partly attributed to favorable liquidity in the market. The yield on the 91-day paper declined by 20 bps to 7.5 percent from 7.7 percent recorded the previous week, while the yields on the 182-day and 364-day papers remained stable at 8.2 percent and 9.4 percent.

The government continues to reject expensive bids as evidenced by the acceptance rate having declined to 69.3 percent from 73.3 percent recorded the previous week, with the government accepting 30.5 billion shillings of the 44.1 billion shillings worth of bids received.

Read:

• T-Bills Under-subscribed During The Week as Interbank Rate Decreases
• Average Interbank Rate Declined to 2.6% as T-Bills Sustain Oversubscription

Primary Bond Auction

Primary T-bond auctions in Q1’2019 were oversubscribed, with the subscription rate averaging 146.5 percent for the quarter, higher than the average subscription rate for Q4’2018, which was 64.5 percent.

The average acceptance rate for the quarter came in at 56.7 percent as the CBK continued to reject bids deemed expensive in order to maintain the rates at low levels, with government reopening two bonds, namely the FXD1/2019/2 and the FXD1/2019/15 to plug in any deficits from the initial issuances.

The re-opened bonds were better received by the market, recording a higher subscription rate averaging 213.0 percent compared to 94.0 percent for first issuances.

The government accepted 131.6 billion shillings against a target of 254.0 billion shillings during the quarter.

Secondary Bond Market Activity

The NSE FTSE bond index recorded a 1.3 percent gain in Q1’2019, with the secondary bond market recording increased activity.

The turnover increased by 21.1 percent to 131.2 billion shillings from 108.2 billion shillings in Q4’2018, as the local institutional investors increased their allocation to treasury bonds, mostly attributed to the interest rate cap that has seen banks shy away from lending due to the associated risk and instead increasing their allocation to government securities.