Money Markets
Treasury bond may fall short of the Sh10b target
Treasury building along Harambee Avenue. The government was encouraged to float the Sh10 billion bond after another issue was oversubscribed. Photo/FILE
Posted Monday, December 21 2009 at 00:00
High prices
Head of the fixed-income market department at Faida Investment Bank Antony Munyiri however said he saw the possibility of the bond realising a 50 per cent over-subscription rate.
He said there is still a lot of demand for the fixed-income market instruments amongst investors.
A dealer, he said, could scout around for a particular bond but most people were not willing to sell forcing prices up and therefore yields down – following the maxim that returns tend to go down when the prices of a bond is high.
Thus anyone looking for a bond was being forced to pay increasingly high prices thereby indicating that his return by the time the bond matures will be lower.
Mr Munyiri said he thought that there average yield would probably come below the coupon rate, due to high demand he expects.
The most recent 20-year bond is in the category of bench mark bonds which are supposed to be a general indicator of the interest rate environment which can be used in pricing by issuers of corporate bonds and other loans.
Central Bank started issuing bench mark bonds last year in response to the financial sector players’ call for a reliable indicator of market interest rates (yield curve).
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