T-Bills Oversubscribed, Treasury Reopens 2 Bonds

By Soko Directory Team / Published November 28, 2022 | 8:25 am

KEY POINTS

The subscription rates for the 364-day and 182-day papers declined to 76.9 percent and 68.5 percent from 89.5 percent and 158.0 percent, respectively recorded the previous week.

KEY TAKEAWAYS

The CBK re-opened two bonds in the primary market, FXD1/2008/20 and FXD1/2022/25, with effective tenors of 5.6 years and 24.9 years, respectively, in a bid to raise 40.0 billion shillings for budgetary support.

The coupon rates are 13.8 percent for FXD1/2008/20 and 14.2 percent for FXD1/2022/25. We expect investors to prefer the bonds, especially the longer-dated ones as a result of the search for higher yields.

During the week, T-bills remained oversubscribed, albeit at a lower rate, with the overall subscription rate declining to 113.4 percent, from the 170.8 percent recorded the previous week.

The lower subscription is partly attributable to tightened liquidity in the money market with the average interbank rate increasing to 4.8 percent from 4.4 percent recorded the previous week.

Investor’s preference for the shorter 91-day paper persisted, with the paper receiving bids worth 12.7 billion shillings against the offered 4.0 billion shillings, translating to a subscription rate of 316.8 percent, down from 406.3 percent recorded the previous week.

The subscription rates for the 364-day and 182-day papers declined to 76.9 percent and 68.5 percent from 89.5 percent and 158.0 percent, respectively recorded the previous week.

The yields on the government papers were on an upward trajectory, with the yields on the 364-day, 182-day, and 91-day papers increasing by 3.8 bps, 1.2 bps, and 4.6 bps to 10.2, 9.7, and 9.2 percent, respectively.

In the Primary Bond Market, the government is seeking to raise 87.8 billion shillings to meet upcoming domestic maturities through a switch auction of three Treasury Bills issues No. 2494/91, 2454/182, and 2380/360, and T-Bond issue No. FXD1/2021/002, with an infrastructure bond, IFB1/2022/6.

Key to note, this will see the conversion of the short-term securities into a longer-term bond, easing the Government’s maturities payments pressures. The sale period ends on 30^th November 2022 and the coupon rate will be market determined.

Given the ample liquidity in the market, the attractive tax-free nature of the infrastructure bond, and the high-interest rates currently offered in the market, we expect the bond to be oversubscribed.

The bond of a similar tenor is currently trading in the secondary market at a yield of 12.3 percent, as such, our recommended bidding range for the bond is 12.5-13.0 percent.

Further, the CBK re-opened two bonds in the primary market, FXD1/2008/20 and FXD1/2022/25, with effective tenors of 5.6 years and 24.9 years, respectively, in a bid to raise 40.0 billion shillings for budgetary support.

The bonds are currently trading in the secondary market at yields of 13.4 and 14.1 percent, for FXD1/2008/20 and FXD1/2022/25, respectively, and as such, our recommended bidding range for the two bonds is 13.6-13.9 percent for FXD1/208/20 and 14.0-14.4 percent for FXD1/2022/25. The period of the sale runs until 6th December 2022.

About Soko Directory Team

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