T-Bills Still Wounded By Covid-19; Any Hope Of The Wound Drying Up?

Last week, T-bills remained undersubscribed, with the subscription rate coming in at 62.6 percent, down from 74.6 percent the previous week.

The undersubscription of the T-Bills was partly attributable to investors’ uncertainty in the market given the recent interest deferral discussions on Kenyan Government treasury papers; the supposed deferral is meant to avail cash flow for the government during the Coronavirus pandemic period.

The subscription rate of the 91-day and 364-day papers declined to 61.1 and 87.8 percent, respectively, from 111.8 and 107.5 percent recorded the previous week, respectively.

The subscription rate of the 182-day paper came in at 38.0 percent, up from 26.8 percent recorded the previous week. The yields on the 91-day, 182-day, and 364-day papers all rose by 0.1 percentage points to 7.3, 8.2, and 9.2 percent, respectively, from 7.2, 8.1, and 9.1 percent.

The acceptance rate increased to 98.5 percent, from 87.5 percent recorded the previous week, with the government accepting 14.8 billion shillings of the 15.0 billion shillings bids received.

The Bond

During the week, the Central Bank of Kenya released the auction results for the newly issued bond, FDX1/2020/5 with an effective tenor of 5.0-years and a coupon rate of 11.7 percent, in a bid to raise Kshs 50.0 bn for budgetary support.

The bond was undersubscribed, with the government receiving bids worth 34.5 billion shillings, lower than the quantum of 50.0 billion shillings, translating to a subscription rate of 69.1 percent.

The low subscription was unexpected given the scarcity of short tenor bonds in the market due to the government efforts of extending its maturity schedule through issuing longer-dated papers, which has seen the saturation on the long end of the yield curve.

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

“We believe the undersubscription is partly attributable to investor’s uncertainty in the market given the recent interest deferral discussions on government papers meant to avail cash flow for the government during the Coronavirus pandemic period.” said analysts from Cytonn Investments.

The yield on the 5-year bond came in at 11.8 percent, with the government accepting 20.8 billion shillings out of the 34.5 billion shillings worth of bids received, translating to an acceptance rate of 60.2 percent.

In the money markets, 3-month bank placements ended the week at 7.9 percent (based on what we have been offered by various banks).

The 91-day T-bill increased by 0.1 percentage point to 7.3 percent, from 7.2 percent recorded the previous week.

The average of Top 5 Money Market Funds remained unchanged at 10.1 percent, similar to what was recorded the previous week.

The yield on the Cytonn Money Market also remained unchanged at 11.0 percent, similar to what was recorded the previous week.

READ: T-Bill Subscription Drops Below 100% As Covid-19 Rises