T-Bills Hit The Roof During The First Week Of February

During the week, T-bills were oversubscribed, with the subscription rate coming in at 217.4 percent up from 135.9 percent the previous week.

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

“We note that the 364-day paper continued to receive the most interest from investors, having recorded the highest subscription rate of the 3 papers, at 311.6 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 target and as such a bias to shorter-dated papers in order 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 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 53.6 percent, from 95.0 percent recorded the previous week, with the government accepting 28.0 billion shillings of the 52.2 billion shillings bids received.

During the week, the National Treasury announced that it will issue a 15-year (FXD1/2020/15) and a 25-year (re-open – FXD1/2018/25) with an effective tenor of 23.3-years, with a total value of 50.0 billion shillings for Budgetary Support purposes. The period of sale is from 3^rd February 2020 to 18^th February 2020.

“As per the historical trend, we expect the market to maintain a bias towards the 15-year bond mainly 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,” says Cytonn Investment.

Our recommended bidding ranges are 12.6 – 12.8 percent and 13.2 – 13.4 percent, for the 15-year and 25-year bonds, respectively, given that bonds with the same tenor are currently trading at 12.5 percent and 13.1 percent respectively.

In the money markets, 3-month bank placements ended the week at 7.6 percent (based on what we have been offered by various banks).

The 91-day T-bill came in at 7.3 percent, while the average of Top 5 Money Market Funds came in at 10.1 percent unchanged from the previous week. The yield on the Cytonn Money Market came in at 11.1 percent, unchanged from the previous week.

READ: T-Bill Subscription Still In The Woods As Christmas Approaches