T-Bills Over-subscribed During the Week as Interbank Rate Declines

T-bills remained over-subscribed during the week, with the overall subscription rate coming in at 140.3 percent, a decline from 198.3 percent recorded the previous week.

The continued over-subscription in the primary auctions in 2019 has been attributed to improved liquidity in the market, driven by debt maturities as well as government payments.

There was mixed performance, with the 91-day paper recording an increase in its subscription rates to 121.5 percent, from 83.4 percent recorded the previous week.

The 182-day and 364-day papers recorded declines in a subscription to 117.1 percent and 170.9 percent, from 149.3 percent and 293.2 percent, recorded the previous week, respectively.

The yields on the 91-day, 182-day, and 364-day papers declined by 2.4 bps, 8.4 bps and 9.3 bps to 7.0, 8.5 and 9.6 percent respectively.

The acceptance rate improved to 90.9 percent from 60.8 percent recorded the previous week, with the government accepting 30.6 billion of the 33.7 billion shillings worth of bids received.

Liquidity

The average interbank rate declined to 1.4 percent from 2.7 percent the previous week, while the average volumes traded in the interbank market rose by 246.4 percent to 17.8 billion shillings from 5.1 billion shillings the previous week.

Commercial banks’ excess reserves stood at 20.8 billion shillings in relation to the 5.25 percent cash reserves requirement (CRR).

The lower interbank rate points to improved liquidity conditions, with the rate declining to an 8-year low of 1.2 percent as at 14^th February 2019 partly attributed to government payments and net redemption of government securities.

Kenya Eurobonds

According to Bloomberg, the yields on the 5-year and 10-Year Eurobonds issued in 2014 declined by 0.3 percentage points to 4.3 percent and 6.6 percent from 4.6 percent and 6.9 percent, the previous week.

The continued decline in yields signals improving country risk perception by investors, which is partly attributed to bullish expectations of improved economic growth in 2019 as well as increased Eurobond demand in emerging markets with a similar trend observed in other Sub-Saharan African Eurobonds, driving the prices up and effectively the yields down.

Key to note is that these bonds have 0.3-years and 5.3-years to maturity for the 5-year and 10-year, respectively.