During the month of May, T-bill auctions recorded an under-subscription according to a report compiled by Cytonn Investments.
The overall subscription rate for the month came in at 82.6 percent a decline from 157.0 percent recorded in the month of April 2019.
The decline in the overall subscription of T-Bills for the month of May was attributed to tightened liquidity in the market, as evidenced by the rise in the average interbank rate to 5.5 percent in May, from 3.4 percent in April.
The subscription rates for the 91-day, 182-day, and 364-day papers came in at 77.9, 27.6 and 139.4 percent, lower than the 137.5, 88.2 and 233.6 percent registered in the previous month, respectively.
The yields on the 91-day and 182-day papers declined by 0.2 percent points and 0.3 percent points, respectively, to 7.1 and 7.7 percent while the yield on the 364-day paper remained unchanged at 9.3 percent from the previous month.
T-bills acceptance rate came in at 89.8 percent during the month, compared to 77.4 percent recorded in April, with the government accepting a total of 71.1 billion shillings of the 79.3 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.
During the week, T-bills recorded an oversubscription, with the subscription rate coming in at 129.4 percent down from 131.4 percent the previous week.
The oversubscription rate is partly attributable to favorable liquidity in the money market during the week supported by government payments.
The yield on the 91-day declined by 0.1 percentage points to 7.0 percent from 7.1 percent, recorded the previous week, while yields on the 182-day and 364-day papers remained unchanged at 7.7 percent and 9.3 percent, respectively.
The acceptance rate declined to 91.1 percent from 91.9 percent, recorded the previous week, with the government accepting 28.3 billion shillings of the 31.1 billion shillings bids received.
The 91-day T-bill is currently trading at a yield of 7.0 percent which is below its 5-year average of 8.7 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.
During the month of May, the government issued two bonds with issue numbers (FXD 2/2019/5) and (FXD 2/2019/15) with 5-year and 15-year tenors.
The issue was 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 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.