End month government flows failed to materially ease liquidity strains in the interbank market.
As a result, the overnight cost of funds continued to nudge higher to 6.63% on Friday, up 13.40bps in the week.
The dislocations reflect the lagged effects of the heavy funds outflow in September in government borrowing (IFB sale) as well as the tax remittances.
Tax outflows may still be felt into this month. At the same time, government borrowing may still be another source of pressure.
In addition to a generally lower liquidity quantum, distribution was also squeezed.
Despite the said pressure, the central bank mopped up KES 18.18Bn in excess liquidity from the interbank market, against a total offer size of KES 35.00Bn.
This was via 6 and 7-day term auction deposits (TADs) at reduced rates 6.943%, just a tad below the CBR.
This may continue to undermine demand for T-bills which has been faltering in recent auctions.
Last week, for the KES 24.00Bn worth of bills on offer, the central bank received KES 10.13Bn and accepted KES 9.62Bn.
Yields settled at 6.895% (up 0.10bps), 7.282% (unchanged) and 7.949% (up 5.90bps) respectively.
Meanwhile, the three reopened bonds, scheduled for auction on 06th October 2021, are expected to garner favourable subscription amid an aggressive search for return.
FXD1/2013/15 (6.40 years), FXD3/2019/15 (12.90 years) and FXD1/2021/25 (24.70 years) could sell at 11.70% – 11.95%, 12.75% – 12.90% and 13.65% – 13.80% respectively.
NCBA Weekly Fixed Income Report – 04th October 2021