T-Bills Drop To Below 100% After Weeks Above Waters

T-bills were undersubscribed during the week with the overall subscription rate coming in at 83.5 percent, a decline from the 115.8 percent recorded the previous week.

The huge drop in the T-Bill subscription was partly attributable to the tightened liquidity in the money markets, with the interbank rates increasing marginally to 4.5, from 4.4 percent recorded the previous week.

The 364-day paper recorded the highest subscription rate, receiving bids worth 10.8 billion shillings against the offered 10.0 billion shillings, translating to a subscription rate of 107.6 percent, a decline from the 161.7 percent recorded the previous week.

The continued oversubscription witnessed for the 364-day paper is attributable to investors’ preference for the longer-dated paper which offers a higher yield of 9.7 percent compared to the 7.3 and 8.1 percent yields offered by the 91-day and 182-day papers.

The subscription rate for the 91-day and 182-day papers declined to 72.3 and 64.0 percent, from 84.6 and 82.4 percent, respectively, recorded the previous week.

The yields on the government papers recorded mixed performance, with the yields on the 91-day declining by 3.2 bps to 7.3 percent, while those of the 182-day and 364-day papers increased by 1.3 bps and 7.4 bps to 8.1 and 9.7 percent, respectively.

The government accepted bids worth 19.9 billion shillings, out of the 20.0 billion shillings worth of bids received, translating to an acceptance rate of 99.3 percent.

Rates in the Fixed Income market have remained relatively stable due to high liquidity in the money market. The government is 6.2 percent ahead of its prorated borrowing target of 392.6 billion shillings having borrowed 443.6 billion shillings of the 658.5 billion shillings borrowing target for the FY’2021/2022.

“We expect a gradual economic recovery as evidenced by the revenue collections of 926.3 billion shillings during the first six months of the current fiscal year, which is equivalent to 104.3 percent of the prorated revenue collection target,” said Cytonn Investments.

However, despite the projected high budget deficit of 11.4 percent and the lower credit rating from S&P Global to ‘B’ from ‘B+’, we believe that the support from the IMF and World Bank will mean that the interest rate environment will remain stable since the government is not desperate for cash.

Read More: January Saw T-Bills Oscillate Above 100% – Cytonn