T-bill Uptake Declines as Kenya Struggles to Meet Domestic Borrowing Target

President Uhuru Kenyatta has lifted the nationwide dusk-to-dawn curfew effective immediately.

Treasury bill subscription declined in last week’s auction with the Central Bank of Kenya (CBK) receiving KSh 15.7 billion bids against the advertised Sh24 billion representing 74.6 percent subscription lower than the previous week.

CBK received Kshs 17.9 billion bids.

The subscription rate of the 91-day and 182-day papers declined to 111.8 percent and 26.8 percent, respectively, from 219.7 percent and 44.5 percent recorded the previous week, respectively. 

The subscription rate for the 364-day paper however improved to 107.5 percent, from 63.8 percent recorded the previous week. The yields on the 91-day, 182-day and 364-day papers remained unchanged at 7.2 percent, 8.1 percent and 9.1 percent, respectively.

“The 91-day T-bill is currently trading at a yield of 7.2 percent, which is below its 5-year average of 8.6 percent. The yield has, however, increased surpassing the 2019 average of 6.9 percent mainly attributable to the repeal of interest rate cap, which has seen banks prefer lending to the private sector, forcing the government to accept expensive bids in order to secure funds from investors,” comments Cytonn Investments Analysts.

NCBA Market Research report week ending 29 April, states that yields may be neutral to the additional rate reduction, but the curve may gradually steepen.

“Cushioning the economy from the pains of the COVID-19 pandemic has aggravated fiscal dominance on the curve and could, therefore, see little to no reaction to further adjustments in interest rates by the central bank.”

The Kenya Revenue Authority (KRA) estimates that the recent reduction in taxes to cushion consumers and businesses could cost the government over Ksh 300 billion in 2020.

Kenya’s current account deficit is estimated at 5.6 percent of GDP in 2021 compared with 5.8 percent in 2020 according to the CBK. This is compared to World Bank projections of a fiscal deficit of 8.0 percent in 2020 from a pre-COVID-19 target of 6.3 percent.

Kenya’s GDP 2020 Growth ‘Remains Highly Uncertain’ – World Bank

Cytonn Investments says the government is 23.2 percent behind its current domestic borrowing target of 404.4 billion, having borrowed Kshs 262.9 billion against a prorated target of Kshs 342.2 billion.

In the month of April, Treasury bill auctions recorded an under subscription, with the overall subscription rate coming in at 72.8 percent, compared to 151.0 percent recorded in the month of March. 

The undersubscription is partly attributable to investor’s preference to hold on to their cash due to low confidence in the market attributable to the Coronavirus outbreak.