T-Bill Subscription Dips As Investors Shift Focus During The Week

Last week, T-bills were undersubscribed, with the subscription rate coming in at 92.8 percent down from 135.0 percent the previous week.

The drop in the subscription was mainly due to investors’ preference to participate in the primary bond market where there is a tap-sale for an 11-year amortized infrastructure bond namely, IFB1/2020/11.

The yields on the 91-day paper and 182-day paper both increased marginally during the week by 0.1 percentage points to close the week at 6.2 and 6.6 percent respectively, from 6.1 and 6.5 percent recorded the previous week.

The yields on the 364-day papers remained unchanged at 7.5 percent, similar to what was recorded the previous week.

The acceptance rate decreased to 83.8 percent, from 94.1 percent recorded the previous week, with the government accepting 18.6 billion shillings of the 22.3 billion shillings worth of bids received.

In the money markets, 3-month bank placements ended the week at 7.2 percent (based on what we have been offered by various banks)

The yields on the 91-day T-bill increased marginally to 6.2 percent from 6.1 percent recorded the previous week.

The average yield of Top 5 Money Market Funds declined marginally to 10.0 percent from 10.1 percent recorded the previous week.

The yield on the Cytonn Money Market also declined marginally to close at 10.6 percent, from 10.7 percent recorded the previous week.

The money market remained liquid during the week with the average interbank rate declining to 2.0 percent, down from the 2.5 percent recorded the previous week mainly supported by government payments.

The average interbank volumes increased by 25.3 percent to 12.9 billion shillings from 10.2 billion shillings recorded the previous week.

According to the Central Bank of Kenya, commercial banks’ excess reserves came in at 23.2 billion shillings.

Rates in the fixed income market have remained relatively stable due to the high liquidity in the money markets, coupled with the discipline by the Central Bank as they reject expensive bids.

The government is 79.7 percent ahead of its prorated borrowing target of  65.5 billion shillings having borrowed 117.6 billion shillings.

“In our view, the government will not be able to meet their revenue collection targets of 1.9 trillion shillings for FY’2020/2021 and therefore leading to a larger budget deficit than the projected 7.5 percent of GDP, ultimately creating uncertainty in the interest rate environment as additional borrowing from the domestic market will be required to plug in the deficit.

“Owing to this uncertain environment, our view is that investors should be biased towards short-term to medium-term fixed income securities to reduce duration risk,” said Cytonn Investments in their weekly report.

READ: Co-operative Bank Registers Ksh 7.2 Billion Profits In 6 Months