Treasury Bills now on the 5th week of under-subscription

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Preference in the fixed income market for the past week was skewed towards short-term paper. The overall subscription came in at 76.6%, compared to 82.5% recorded the previous week.

The 91-day T-bill, on the other hand, was oversubscribed. Yields on the 91-day and 182-day T-bills remained unchanged during the week, closing at 8.7% and 10.5%, respectively. Yields on the 364-day T-bill declined by 10 bps to 10.9% from 11.0% the previous week.

Equities Market

The Kenyan equities market, was on a downward trend during the week, with NASI, NSE 20 and NSE 25 losing 1.4%, 3.5% and 2.9%, respectively. East African Breweries Limited (EABL) released their H1’2017 results recording a flat core EPS growth of 1.8%, to Kshs 7.1 from Kshs 7.0 in H1’2016. The performance is attributed to a 6.3% decline in operating revenue coupled with a 12.0% decline in operating expenses, which resulted in a slight increase in operating profit of 2.2%;

Last week, the Treasury re­opened a bond, FXD 2/2007/15 with an effective time to maturity of 5.4 years, seeking to raise Kshs 30.0 billion for budgetary support. The auction was however canceled, an indication that either investor bid at yields which the CBK considered unrealistically above market, or subscription rates for the bond were low as a result of the tight liquidity that has characterized the money market since the beginning of the year.

The tight liquidity in the money market has been mainly as a result of CBK mop up activities in order to support the shilling. This is the second time since the beginning of the year that we have seen CBK cancel an auction, following the auction for a 364­day T­bill that was canceled at the beginning of the year.

The interbank rate, however, remained stable at 8.3% and the volumes transacted increased to Kshs 15.9 billion from Kshs 12.7 billion transacted the previous week? The interbank rate is often determined by the liquidity distributions within the banking sector as opposed to the net liquidity position in the interbank market.

Yields on the 5­year and 10­year Eurobond decreased week on week by 20 bps and 10 bps to 4.2% and 7.3%, from 4.4% and 7.4%, respectively, the previous week. This is according to Bloomberg. Since the mid­January 2016 peak, yields on the Kenya Eurobonds have declined by 4.6 percentage points and 2.3 percentage points for the 5­year and 10­year bonds, respectively, due to improving macroeconomic conditions.

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Melissa Daniels
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