T-Bills Back In The Red As November Melts Away

T-bills recorded an undersubscription, with the overall subscription rate coming in at 64.5 percent, down from the 108.6 percent recorded the previous week, partly attributable to tightened liquidity in the money market.

The 91-day paper recorded the highest subscription rate, receiving bids worth 3.9 billion shillings against the offered 4.0 billion shillings, translating to a subscription rate of 98.4 percent, a decline from the 209.9 percent recorded the previous week.

The subscription rate for the 364-day and 182-day papers declined to 90.3 and 25.2 percent, from 92.0 and 84.8 percent, respectively, recorded the previous week.

The yields on the 91-day, 182-day, and 364-day papers increased by 6.7 bps, 8.8 bps, and 10.4 bps, to 7.2, 7.8, and 8.9 percent, respectively.

The government continued to reject expensive bids accepting 13.0 billion shillings of the 15.5 billion shillings worth of bids received, translating to an acceptance rate of 83.9 percent.

In the Primary Bond Market, the government reopened two bonds, FXD4/2019/10 and FXD1/2018/20, with effective tenors of 8.0 years, and 16.4 years, respectively, in a bid to raise 40.0 billion shillings for budgetary support. The period of sale for the issue runs from 22^nd November to 7^th December 2021.

The coupon rates are 12.3 and 13.2 percent for FXD4/2019/10 and FXD1/2018/20, respectively. “We expect investors to prefer the longer-dated paper, FXD1/2018/20, as they search for higher yields.”

The bonds are currently trading in the secondary market at yields of 12.3 and 13.0 percent, for FXD4/2019/10 and FXD1/2018/20, respectively.

“Our recommended bidding range for the two bonds is 12.1-12.5 percent for FXD4/2019/10 and 12.8-13.2 percent for FXD1/2018/20 within which bonds of a similar tenor are trading at,” said Cytonn in a report.

At the same time, during the week, liquidity in the money market tightened, with the average interbank rate increasing by 4.2 bps to 5.24 percent from 5.20 percent recorded the previous week, partly attributable to tax remittances which partly offset government payments.

The average interbank volumes traded declined by 11.5 percent to Kshs 9.7 bn, from Kshs 11.0 bn recorded the previous week.