T-Bills Still In The Red, Bonds Undersubscribed As New Month Kicks Off

During the month of October, T-bills remained undersubscribed, with the overall subscription rate coming in at 57.9 percent, down from 67.3 percent recorded in September 2021.

The undersubscription was mainly attributable to the tightened liquidity in the money market with the average interbank rate increasing by 0.5 percentage points to 5.3 percent, from 4.8 percent recorded in September.

Overall subscription rates for the 91-day, 182-day, and 364-day papers came in at 97.5, 62.1, and 37.9 percent, down from 119.2, 72.8, and 40.9 percent in September 2021.

The yields on the 91-day, 182-day, and 364-day papers increased by 12.0 bps, 10.8 bps, and 38.2 bps to 7.0, 7.4, and 8.1 percent, respectively.

For the month of October, the government accepted a total of 52.1 billion shillings, out of the 55.6 billion shillings worth of bids received, translating to a 93.7 percent acceptance rate.

T-Bills During The Week

During the week, T-bills remained undersubscribed, with the overall subscription rate coming in at 66.0 percent, down from 74.2 percent recorded the previous week.

This was partly attributable to the tightened liquidity in the money market coupled with the investor’s shift to the EABL corporate bond market in search of higher yields.

EABL’s recently issued corporate bond recorded an oversubscription of 344.5 percent as they were seeking to raise 11.0 billion shillings and received bids worth 37.9 billion shillings.

The 182-day paper recorded the highest subscription rate, receiving bids worth 7.4 billion shillings against the offered 10.0 billion shillings, translating to a subscription rate of 74.2 percent, an increase from the 65.3 percent recorded the previous week.

The subscription rate for the 91-day paper declined to 66.0 percent from 163.0 percent while the subscription rate for the 364-day paper increased to 57.9 percent, from 47.6 percent recorded the previous week.

The yields on the 91-day, 182-day, and 364-day papers increased by 2.0 bps, 6.9 bps, and 13.4 bps, to 7.0, 7.6, and 8.5, respectively.

The government continued to reject expensive bids, accepting bids worth 13.9 billion shillings out of the 15.8 billion shillings bids received, translating to an acceptance rate of 87.9 percent.

The Primary Bond Market

In the Primary Bond Market, the government re-opened three bonds namely; FXD1/2013/15, FXD1/2019/15, and FXD1/2021/25 for the month of October, which recorded a subscription rate of 92.5 percent.

The undersubscription was attributable to the tightened liquidity in the money market during the month. The government sought to raise 60.0 billion shillings for budgetary support, received bids worth 55.5 billion shillings, and accepted bids worth 52.0 billion shillings, translating to a 93.8 percent acceptance rate.

Investors preferred the longer-tenure issue i.e. FXD1/2021/25, which received bids worth 28.7 billion shillings, representing 51.7 percent of the total bids received, owing to its higher yield.

The coupons for the three bonds were; 11.3, 12.3, and 13.9 percent, and the weighted average yield rates during the issue were; 11.9, 12.8, and 13.8 percent, for FXD1/2013/15, FXD1/2019/15, and FXD1/2021/25, respectively.

For the month of November, the government re-opened one bond, FXD1/2019/20, with an effective tenor of 17.5 years and issued a new 5-year bond, FXD1/2021/5.

The government is seeking to raise Kshs 50.0 bn for budgetary support and the period of sale for the issues is 25^th October to 9^th November 2021.

The coupon rate for FXD1/2019/20 is 12.9 percent, while that of FXD1/2021/5 will be market-determined.

“We expect an oversubscription on the bond owing to the renewed investor confidence in the bond market despite the tightening liquidity,” said Cytonn.