T-Bills Subscriptions Spike After Dropping To Below 40%

During the week, T-bills were oversubscribed, with the overall subscription rate coming in at 110.7 percent, up from the 37.5 percent, recorded the previous week.

Investors’ preference for the shorter 91-day paper persisted as they sought to avoid duration risk, with the paper receiving bids worth 19.3 billion shillings against the offered 4.0 billion shillings, translating to an oversubscription rate of 508.0 percent.

The subscription rate for the 182-day and the 364-day papers increased to 53.4 and 9.2 percent, from 14.4 and 8.7 percent, respectively, recorded the previous week.

The government accepted bids worth 25.5 billion shillings out of the 26.6 billion shillings total bids received, translating to an acceptance rate of 96.1 percent.

The yields on the government papers were on an upward trajectory, with the yields on the 364-day paper, 182-day, and 91-day papers increasing by 4.6 bps, 16.7 bps, and 4.3 bps to 11.2, 10.7, and 10.3 percent respectively.

At the same time, during the week, liquidity in the money markets tightened, with the average interbank rate increasing to 9.7 percent, from 9.2 percent recorded the previous week, partly attributable to tax remittances that offset government payments.

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The average interbank volumes traded increased by 11.3 percent to 19.0 billion shillings, from 17.1 billion shillings recorded the previous week.

Rates in the Fixed Income market have been on an upward trend given the continued government’s demand for cash and the highly tightened liquidity in the money market.

The government is 0.9 percent behind its prorated borrowing target of 363.2 billion shillings having borrowed 359.8 billion shillings of the revised domestic borrowing target of 425.1 billion shillings for the FY’2022/2023.

We believe that the projected budget deficit of 5.7 percent is relatively ambitious given the downside risks and deteriorating business environment occasioned by high inflationary pressures.

Further, revenue collections are lagging behind, with total revenue as of March 2023 coming in at 1.4 trillion shillings in the FY’2022/2023, equivalent to 65.9 percent of its revised target of 2.2 trillion shillings and 87.9 percent of the prorated target of 1.6 trillion shillings.

Therefore, we expect a continued upward readjustment of the yield curve in the short and medium term, with the government looking to bridge the fiscal deficit through the domestic market.

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