T-Bills Ended Njaanuary With An Over-subscription – Cytonn

During the month of January, T-bill auctions recorded an oversubscription according to a compiled report by Cytonn Investments.

The overall subscription rate for the month of January for T-Bills came in at 164.1 percent compared to 56.2 percent recorded in the month of December 2019.

The subscription rates for the 91-day came in at 86.2 percent which was higher than the 65.4 percent recorded in December.

The subscription rates for the 182-day and 364-day came in at 50.0 percent and 230.5 percent higher than the 24.6 percent and 57.1 percent recorded in December, respectively.

“We note that there was pent up demand for the 364-day paper, having recorded the highest subscription rate of the 3 papers, at 230.5 percent,” said analysts from Cytonn Investments.

This is attributable to the market currently pricing that the government will be under pressure to meet its domestic borrowing target, and as such a bias to shorter-dated papers to avoid duration risk, which has seen most investors still keen on the primary fixed income market, finding the 364-day T-bill more attractive on a risk-adjusted return basis.

The yields on the 91-day, 182-day paper, and 364-day paper recorded increases of 60 bps, 50 bps, and 30 bps, respectively, to close at 7.2, 8.2, and 9.8 percent respectively, in January.

The T-bills acceptance rate came in at 84.2 percent during the month, as compared to 79.8 percent recorded in December, with the government accepting a total of 132.6 billion shillings of the 157.5 billion shillings worth of bids received.

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

During the first week, T-bills were oversubscribed, with the subscription rate coming in at 135.9 percent, down from 145.9 percent the previous week.

The oversubscription is partly attributable to favourable liquidity in the money market during the week due to government payments.

The yield on the 91-day, 182-day, and 364-day papers remained unchanged at 7.3, 8.2, and 9.9 percent respectively.

The acceptance rate rose to 95.0 percent, from 77.0 percent recorded the previous week, with the government accepting 31.0 billion shillings of the 32.6 billion shillings bids received.

The 91-day T-bill is currently trading at a yield of 7.3 percent which is below its 5-year average of 8.6 percent. The yield has, however, increased surpassing the 2019 average of 6.9 percent mainly attributable to the repeal of interest rate cap, which has seen banks prefer lending to the private sector, forcing the government to accept expensive bids in order to secure funds from investors.

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