T-Bills Feeling The Heat Of Covid-19, Still In The Red

During the week, T-bills remained undersubscribed, with the subscription rate coming in at 81.7 percent up from 59.5 percent the previous week.

The undersubscription of T-Bills is partly attributable to the IFB1/2020/9 bond tap sale in the primary market, which had a subscription rate of 180.2 percent.

The subscription rate of the 91-day and 182-day papers increased to 219.7 percent and 44 percent respectively, from 65.5 percent and 8.1 percent recorded the previous week, respectively.

The subscription rate of the 364-day paper came in at 63.8 percent from 108.6 percent recorded the previous week.

“We note that the oversubscription of the 91-day paper is attributable to the increased demand for shorter-dated papers, with demand for longer-dated papers expected to reduce due to the tap-sale on the recently issued infrastructure bond,” said Cytonn Investments.

The yields on the 91-day, 182-day, and 364-day papers remained unchanged at 7.2, 8.1, and 9.1 percent respectively, similar to what was recorded the previous week.

The acceptance rate declined marginally to 99.5 percent, from 99.7 percent recorded the previous week, with the government accepting 19.5 billion shillings of the 19.6 billion shillings bids received.

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The tap-sale for the 9-year infrastructure bond (IFB1/2020/9), that closed during the week, with a coupon rate of 10.9 percent in a bid to raise 21.0 billion shillings for funding of infrastructure projects in the FY 2019/20 budget estimates was oversubscribed.

The government received bids worth 37.8 billion shillings, higher than the issue’s quantum of K21.0 billion shillings translating to a subscription rate of 180.2 percent.

The high subscription was mainly attributable to its relatively short tenor, being an infrastructure bond, as well as the tax-free incentive for infrastructure bonds, translating to a higher return.

The yield on the bond came in at 12.1 percent, with the government accepting 35.4 billion shillings out of the 37.8 billion shillings worth of bids received, translating to an acceptance rate of 93.5 percent.

Given the tax-free nature of the bond, this is comparable to a Yield to Maturity (YTM) of 13.3 percent, on a normal bond with the assumption of a 10.0 percent withholding tax for a bond with the same effective tenor.

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