T-Bills Under-subscribed For The Second Week In A Row

During the week, T-bills were undersubscribed, for the second week in a row, with the subscription rate coming in at 57.0 percent down from 87.9 percent the previous week.

The undersubscription, according to Cytonn Investments was attributable to investor’s preference to hold on to their cash due to low confidence in the market attributable to the Coronavirus outbreak.

The subscription rate of the 91-day paper increased to 89.6 percent from 13.7 percent the previous week, with most investors showing more interest in the shortest dated paper to avoid duration risk as a result of increased uncertainty due to the outbreak of COVID-19.

The subscription on the 182-day and 364-day paper declined to 33.5 percent and 67.4 percent from 36.1 percent and 169.4 percent respectively, the previous week.

The yields on the 91-day paper and 364-day paper declined by 0.1 percentage point to 7.2 and 9.0 percent from 7.3 and 9.1 percent respectively, recorded the previous week.

The yields on the 182-day paper increased by 0.1 percentage point to 8.1 percent from the 8.0 percent recorded the previous week.

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The acceptance rate decreased to 85.3 percent from 99.7 percent recorded the previous week, with the government accepting 11.7 billion shillings of the 13.7 billion shillings bids received.

During the week, the Kenyan government issued a new 9-year amortized (50 percent of unencumbered outstanding principal amount and a 100 percent final redemption of all outstanding amount) Infrastructure bond.

IFB1/2020/9 has an effective tenor of 9.0 years, and a coupon rate of 10.9 percent and will be issued in a bid to raise Kshs 60.0 bn for funding of infrastructure projects in the FY 2019/20 budget estimates.

The first redemption date will be on 7^th April 2025 while the final redemption will be on 2^nd April 2029.  Compared to the March issue of the FXD1/2018/20 & FXD1/2018/25, which subscription rate came in at 70.3 percent.

“We expect the IFB1/2020/9 to attract more interest due to its short tenor as well as the tax-free incentive for infrastructure bonds, translating to a higher return.

We expect the weighted average of accepted bids to come in at 11.1% – 11.3% given that an infrastructure bond of a similar tenor is currently trading at 11.1% on the yield curve,” said Cytonn.

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