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Liquidity In The Interbank Space Holds Steady As Market Activity Surges

BY Standard Investment Bank · November 11, 2024 03:11 pm

KEY POINTS

Investor interest was heavily skewed toward the 182-day paper, which alone accounted for 43.5% of total bids received. In total, bids worth KES 98.37bn were submitted, but the fiscal agent accepted KES 53.74bn—the highest acceptance in exactly one year.

KEY TAKEAWAYS

The Government's outstanding T-Bill and T-Bond maturities as of this week (with respect to the next 12 months) are worth KES 727.37bn and KES 437.61bn, respectively. All maturities including interest payments amount to KES 1.80tn.

Liquidity in the interbank market held steady this week, with the average lending rate nudging up slightly to 12.08% from 12.0% last week. Meanwhile, market activity surged as average traded volumes rose by 75.3% to KES 55.18bn, down from KES 31.47bn, mirroring a 45.2% increase in transaction count – Notably, the week witnessed the highest single-day volumes in history, setting a new benchmark in interbank trading.

On the other hand, the discount window stayed open for the fifth consecutive week, stepping in for CBK’s usual early-week injections. Yet, the CBK still pumped KES 40bn through reverse repos on Tuesday and Wednesday.

These moves paint a puzzling picture given the record-high subscription rates on government securities, which would otherwise indicate sufficient liquidity in the money market.

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T-Bill demand made a striking comeback this week, soaring to 409.9% from 259.0%, setting a new record.

Investor interest was heavily skewed toward the 182-day paper, which alone accounted for 43.5% of total bids received. In total, bids worth KES 98.37bn were submitted, but the fiscal agent accepted KES 53.74bn—the highest acceptance in exactly one year.

The weighted average rate for accepted bids was: 13.45% (-51.60 bps) for the 91-day paper, 13.84% (-68.33 bps) for the 182-day paper, and 14.45% (-52.08 bps) for the 364-day paper. If this momentum holds, rates for the 91-day and 182-day papers could inch closer to single digits, towards year-end aligning with the government’s target of keeping the yield curve below 10% in the short to medium term.

In the primary bond market, two of the November issuances garnered notable interest, despite their longer tenors—a surprising shift given the recent investor preference for short-term papers.

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The 10-year and 15-year papers recorded a subscription rate of 132.2%, attracting bids worth KES 33.05bn against a target of KES 25bn. However, the fiscal agent accepted KES 25.68bn, representing a 77.7% acceptance rate.

Interestingly, both papers drew comparable investor interest, despite differences in their return profiles. The weighted average rates settled at 15.97% for FXD1/2023/10 and 16.30% for FXD1/2022/15, remaining close to prevailing market rates.

The Government’s outstanding T-Bill and T-Bond maturities as of this week (with respect to the next 12 months) are worth KES 727.37bn and KES 437.61bn, respectively. All maturities including interest payments amount to KES 1.80tn.

Meanwhile, the government has borrowed 80.3% of the FY24/25 domestic borrowing target with a current borrowing of KES 328.03bn (Inclusive of T-Bills), well above the prorated target of KES 157.08bn.

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