T-Bills Dominate Week 1 Of March With An Oversubscription

During the week, T-bills remained oversubscribed, with the subscription rate coming in at 195.1 percent down from 226.6 percent the previous week.

The oversubscription of the T-Bills during the week was attributable to the continued favorable liquidity in the money market, evidenced by the average interbank rate having declined from 4.1 to 4.0 percent as a result of government disbursements and local debt maturities.

“We note the continued pent up demand for the 364-day paper, having recorded the highest subscription rate of the three papers, which we attribute to the market having a bias to the shorter-dated papers to avoid duration risk,” said Cytonn in their weekly report.

The scarcity of shorter-dated bonds in the primary market due to the government issuing medium-term and longer-dated papers in a bid to increase the debt maturity profile 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 and 182-day papers remained unchanged at 7.3 and 8.2 percent respectively, while the yield on the 364-day paper declined by 0.4 percentage points to 9.3 percent from the 9.7 percent recorded the previous week.

This decline is mainly due to increased demand for the 364-day paper with the average subscription rate for the year 2020 coming in at 308.1 percent versus the 2019 average of 188.6 percent coupled with increased liquidity in the money market as well as the government being ahead of its borrowing target giving it the leeway to reject expensive bids.

The acceptance rate rose to 46.0 percent from 27.6 percent recorded the previous week, with the government accepting 21.5 billion shillings of the 46.8 billion shillings bids received.

During the week, the National Treasury announced that it will reopen two bonds, namely FXD1/2018/20 and FXD1/2018/25, with effective tenors of 18.1-years and 23.3-years, respectively, with a total value of 50.0 billion shillings to raise capital for budgetary support.

The period of sale is from 3^rd March 2020 to 17^th March 2020. Our recommended bidding ranges are 12.9 – 13.0 percent and 13.4 – 13.6 percent for the FXD1/2018/20 and FXD1/2018/25, respectively, given that they are currently trading at 12.9 percent and 13.4 percent respectively.

“We expect the bidding ranges to stay above the current yield to maturities mainly because of oversupply of long term bonds and lower demand for longer-dated bonds from investors trying to avoid duration risk,” said Cytonn.

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