T-Bill Subscription Still Low for the Second Week Running

T-bills remained undersubscribed during the week, with the overall subscription rate increasing to 57.9 percent from 49.0 percent recorded the previous week.

The under-subscription of the T-Bills was attributable to tight liquidity in the market partly due to tax payments, coupled with the close of the 5-year and 15-year primary bond sale during the week.

The yields on the 91-day, 182-day, and 364-day papers declined by 5.4 bps, 6.1 bps and 0.4 bps to 7.2, 7.9 and 9.3 percent respectively.

The acceptance rate declined slightly to 99.9 percent from 100.0 percent recorded the previous week, with the government accepting 13.88 billion shillings of the 13.89 billion shillings worth of bids received.

Government Bonds

The newly issued bonds for the month of May, issue numbers (FXD 2/2019/5) and (FXD 2/2019/15) with 5-year and 15-year tenors were oversubscribed, with the performance rate coming in at 141.7 percent.

The market maintained a bias towards the 5-year bond that generated total bids of 39.2 billion shillings as investors continue to avoid the longer-tenor bond driven by the perception that risks may not be adequately priced on the longer end of the yield curve, which is relatively flat due to saturation of long-term bonds, coupled with the duration risk associated with longer-term papers.

The accepted yields for the 5-year and 15-year bonds came in at 10.9 percent and 12.7 percent in line with “our expectations of 10.8 – 11.0 percent and 12.5 – 12.7 percent for the 5-year and 15-year bonds, respectively,” said Cytonn Investments.

• READ: This Weeks Full Cytonn Report focusing on Understanding Kenya’s Retirement Benefit Schemes
• READ: Take Charge of Your Investment with Cytonn Money Market Fund

The Interbank Rate

During the week, the average interbank rate rose to 6.4 percent, from 6.0 percent the previous week, pointing to tightened liquidity conditions in the money market as banks were mobilizing funds to pay for tax remittances with PAYE due on 9^th of May.

The average volumes traded in the interbank market also rose by 4.2 percent to 13.6 billion shillings from 13.0 billion shillings the previous week.

Kenya Eurobonds

According to Bloomberg, the yield on the 10-year Eurobond issued in 2014 rose by 0.2 percentage points to 6.4 percent from 6.2 percent the previous week, while that of the 5-year remained unchanged at 4.2 percent.

The continued rise is partly attributable to increased risk perception due to the downgrading of Kenya’s 2019 growth prospects. Key to note is that these bonds have 1.4 months and 5.1-years to maturity for the 5-year and 10-year, respectively.

For the February 2018 Eurobond issue, yields on the 10-year Eurobond rose by 0.2 percentage points to 7.5 percent from 7.3 percent recorded the previous week.

The yield on the 30-year Eurobond rose by 0.3 percentage points to 8.5 percent from 8.2 percent, recorded the previous week.

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