T-Bills Decline Further On Account Of Tightening Liquidity

There was a decline in the subscription rates for T-bills with the overall subscription rate declining to 59.8 percent last week, down from 86.9 percent recorded last week.

The undersubscription can be attributed to the tightening liquidity in the money markets as evidenced by the increase in the average interbank rates to 5.5 percent, from 4.4 percent recorded the previous week.

Investors are still biased towards the 364-day T-bill as the absolute amount of bids received were 8.9 billion shillings compared to 3.7 billion shillings and 2.0 billion shillings for the 182-day and 91-day bills respectively.

Yields on the 364-day and 91-day papers rose by 5.7 bps and 0.7 bps, to 9.5 and 7.1 percent, respectively, while the yield on the 182-day paper declined by 1.3 bps to 7.9 percent.

The government continued to reject expensive bids by accepting 13.4 billion shillings of the 14.4 billion shillings bids received, translating to an acceptance rate of 93.6percent.

In the primary bonds auction, the government is seeking to raise 30.0 billion shillings for budgetary support by reopening a previously issued bond, FXD2/2019/15 with an effective tenor of 13.0 years.

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The bond is currently trading at a yield of 12.8 percent in the secondary market, as such, we recommend a bidding range of 12.5-12.7 percent.

The government has also opened bidding for a new issue, FXD1/2021/25, with a tenor of 25.0 years, with the coupon rate being market-determined.

“Bonds with similar tenor are currently trading at a yield of 12.8 – 13.4 percent in the secondary market and as such, we recommend a bidding range of between 12.9-13.3 percent,” said Cytonn Investments in their weekly report.

“We anticipate an oversubscription as investors have recently favored papers with longer tenors and subsequently a high acceptance rate as the government seeks to raise more funds to fund the recently approved supplementary budget,” added experts from Cytonn.