T-Bill Subscription Hit The Lowest, Ends The Week At 46.6%

By Soko Directory Team / Published September 26, 2022 | 9:22 am

KEY POINTS

The yields on the government papers recorded mixed performance, with the yields on the 182-day and 91-day papers increasing by 1.0 bp and 0.1 bps to 9.6 and 9.0 percent, respectively, while the yields on the 364-day paper declined by 0.4 bps to 9.9 percent.

KEY TAKEAWAYS

In the primary bond market, the government re-opened two bonds namely; FXD1/2017/10 and FXD1/2020/15, and opened a new FXD1/2022/25, with effective tenors of 4.9 years, 12.3 years, and 25 years respectively, in a bid to raise Kshs 60.0 bn for budgetary support.

T-bills were undersubscribed last week, with the overall subscription rate coming in at 46.6 percent, a decline from the 97.0 percent recorded the previous week.

The undersubscription was partly attributable to the tightened liquidity in the money market, with the average interbank rate increasing to 4.5 from 4.0 percent recorded in the previous week.

Investor’s preference for the shorter 91-day paper persisted, with the paper receiving bids worth 4.7 billion shillings against the offered 4.0 billion shillings, translating to a subscription rate of 117.8 percent down from 248.4 percent recorded in the previous week.

It is worth noting that the 91-day paper’s rate has been increasing, with the rate quickly heading to 9.0 percent levels which has consistently countered the need to invest in the longer tenor papers.

The subscription rate for the 364-day and 182-day papers declined to 10.4 and 54.3 percent from 19.6 and 113.9 percent, respectively, recorded the previous week.

“We however believe that the 91-day paper rates are not sustainable and this will likely lead to a reversal in the rates in the short term,” said Cytonn Investments in a statement.

The government continued to reject expensive bids, accepting a total of 10.1 billion shillings worth of bids out of the 11.2 billion shillings worth of bids received, translating to an acceptance rate of 90.2 percent.

The coupon rates for bonds are 13.0 and 12.8 percent for FXD1/2017/10 and FXD1/2020/15 while the coupon rate for FXD1/2022/25 will be market determined.

“We expect the bonds to be undersubscribed as investors continue to attach higher risk premium on the country due to increased perceived risk arising from increasing inflationary pressures,” Cytonn added.

The bonds are currently trading in the secondary market at yields of 12.7 and 13.8 percent for FXD1/2017/10 and FXD1/2020/15, respectively.

“As such, our recommended bidding ranges for the three bonds are 12.7-13.2 percent for FXD1/2017/10, 13.8-14.3 percent for FXD1/2020/15, and 14.0-14.5 percent for FXD1/2022/25 within which bonds of a similar tenor are trading at.”

The period of sale for the bonds runs from 21st September 2022 to 4th October 2022 for FXD1/2017/10 and FXD1/2020/15 and from 21st September 2022 to 18th October 2022 for FXD1/2022/25.

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