T-Bills Snail Through August With An Undersubscription

T-bills recorded an undersubscription, with the overall subscription rate coming in at 36.5 percent during the month of August, down from 106.6 percent recorded in July, as investors shifted their interest to the bonds market in search of higher returns.

Investors’ demand shifted to the 364-day paper which recorded the highest subscription rate of 49.6 percent, down from 50.8 percent recorded the previous month.

On the other hand, the subscription rate for the 91-day and 182-day papers declined to 20.2 and 44.2 percent, from 213.4 and 119.7 percent recorded the previous month, respectively.

The yields on the 91-day, 182-day, and 364-day papers increased by 26.4 bps, 24.0 bps, and 6.0 bps to 6.7, 7.2, and 7.6 percent, respectively.

For the month of August, the government accepted a total of 83.9 billion shillings, out of the 85.9 billion shillings worth of bids received as they sought to contain the rates. This translated to a 97.7 percent acceptance rate.

Last week, T-bills were slightly undersubscribed, with the overall subscription rate coming in at 99.5 percent, up from the 36.5 percent recorded the previous week attributable to the eased liquidity in the market as evidenced by the 0.1 percentage points decline in the interbank rates.

The 91-day paper recorded the highest subscription rate of 100.8 percent an increase from the 20.2 percent recorded the previous week, receiving bids worth 4.03 billion shillings against the offered 4.00 billion shillings.

The subscription rate for the 182-day and the 364-day papers increased to 99.5 and 98.9 percent, from 44.2 and 49.6 percent recorded the previous week, respectively.

The yields on the 91-day, 182-day, and 364-day papers increased by 3.3 bps, 3.1 bps, and 2.5 bps to 6.8, 7.2, and 7.5 percent, respectively. The government accepted all 23.9 billion shillings bids received, translating to an acceptance rate of 100.0 percent.

In the Primary Bond Market, the government offered three bonds namely; FXD3/2019/10, FXD1/2018/20, and FXD1/2021/20 for the month of August.

The Bond recorded a subscription rate of 174.4 percent attributable to the high liquidity in the market and the investors’ appetite for higher yields.

The government sought to raise 60.0 billion shillings in the three bonds and accepted 80.3 billion shillings out of the 104.6 billion shillings worth of bids received translating to an acceptance rate of 76.7 percent.

Investors preferred the longer-dated paper, FXD1/2021/20 which received bids worth 43.5 billion shillings. FXD3/2019/10 received bids worth 38.3 billion shillings while FXD1/2018/20 received bids worth 22.8 billion shillings.

The coupons for the three bonds were 11.5, 13.2, and 13.4 percent, and the weighted average yield rates during the issues were 12.3, 13.3, and 13.5 percent for FXD3/2019/10, FXD1/2018/20, and FXD1/2021/20, respectively.

For the month of September, the government is seeking to raise 75.0 billion shillings for infrastructure projects by opening an infrastructure bond, IFB1/2021/21, with a tenor of 21 years whose offer period ends on 7^th September 2021.

“Given the eased liquidity in the market coupled with the government’s increased appetite for domestic borrowing as well as the attractive tax-free nature of the infrastructure bond, we anticipate an oversubscription and a higher acceptance rate,” said Cytonn.

Our recommended bidding range for the bond is 11.8-12.0 percent within which bonds of a similar tenor are trading and given that this is a tax-free bond it translates to a return of around 14.0 percent.

Read More: T-Bills Roar Back To Oversubscription After Being In The Red