T-Bills Shine In May With 136.2%: What Does June Hold?

T-bill auctions recorded an oversubscription during the month of May according to stats compiled by Cytonn Investments.

The overall subscription rate of the T-Bills in May came in at 136.2 percent, an increase from 89.1 percent recorded in April.

The continued high demand for the 364-day paper was reflected in the increased subscription rate to 144.2 percent, from 91.0 percent recorded the previous month.

Investors’ continued interest in the 364-day paper, during the month, is mainly attributable to the paper’s attractive return of 9.0 percent which is higher than the rate being offered by most banks.

The subscription rate for the 182-day papers increased to 21.8 percent from 20.6 percent, while the subscription rate for the 91-day declined to 25.0 percent, from 68.6 percent recorded in April.

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The yields on the 364-day and 182-day papers declined by 31.8 bps and 12.4 bps to 9.0 and 7.8 percent, respectively, while the yields on the 91-day paper remained unchanged at 7.1 percent.

For the month the government accepted a total of 104.6 billion shillings, out of the 163.5 billion shillings worth of bids received as they sought to contain rates.

T-bills remained oversubscribed last week with the overall subscription rate coming in at 162.5 percent, an increase from the 152.4 percent recorded the previous week.

The demand for the 364-day paper persisted, as it recorded the highest bids worth 27.6 billion shillings against the offered 10.0 billion shillings, translating to a subscription rate of 276.3 percent, an increase from the 238.2 percent recorded the previous week.

The continued interest in the 364-day paper is mainly attributable to investors rushing to lock in the paper’s attractive return of 9.0 percent given that the rates have been declining over the past few weeks.

The subscription rate for the 182-day paper declined to 100.0 percent, from 103.1 percent recorded the previous week, receiving bids worth 10.0 billion shillings.

The subscription rate for the 91-day paper declined to 34.3 percent, from 116.1 percent recorded the previous week, with the paper receiving bids worth 1.4 billion shillings against the offered amounts of 4.0 billion shillings.

The yields on all three papers declined; with the 91-day, 182-day, and 364-day paper declining by 0.2 bps, 4.7bps, and 18.3 bps, to 7.1, 7.8, and 9.0 percent, respectively.

The government continued to reject expensive bids, accepting 22.9 billion shillings out of the 39.0 billion shillings worth of bids received, translating to an acceptance rate of 58.7 percent.

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In the Primary Bond Market, the two bonds reopened by the government for the month of May recorded an overall subscription rate of 142.0 percent.

Investors preferred the longer-dated paper, FXD1/2021/25, with a tenor of 25 years, which received bids worth 31.0 billion shillings, against the 30.0 billion shillings offered amount which translated to a subscription rate of 103.4 percent.

On the other hand, FXD2/2019/15 received bids worth 11.6 billion shillings against the 30.0 billion shillings offered, translating to a subscription rate of 38.6 percent.

The average yields on the two bonds were 13.0 percent for FXD2/2019/15 and 13.9 percent for FXD1/2021/25. The government continued rejecting expensive bids by accepting 20.3 billion shillings of the 42.5 billion shillings worth of bids received, translating to an acceptance rate of 47.6 percent.

During the week, the government reopened bidding for two bonds, FXD1/2019/20 and FXD1/2012/20, with tenors of 17.9 years and 11.4 years, respectively, whose offer period ends on 15^th June 2021.

The coupon rates are 12.9% for FXD1/2019/20 and 12.0 percent for FXD1/2012/20. We expect the investors to prefer the longer-dated paper, FXD1/2019/20, as they consider the prevailing risks posed by the pandemic. We recommended bidding of the two bonds at 12.9-13.2 percent and 12.3-12.6 percent for each bond respectively.