CBK cancels 15-year bond meant for budgetary support

The auction for this month’s Sh30 billion bond has been cancelled by the Central Bank of Kenya (CBK), setting the Treasury back in its efforts to plug the budget deficit through domestic financing.

CBK was expected to carry out the auction for the re-opened 15-year bond on Wednesday, but in a notice published Thursday the regulator announced the cancellation, which some market players say may have been caused by either low bidding or high rate demands by buyers.

“It is not clear yet the reason behind the auction cancellation. The likely reasons could have been due to poor subscriptions in the wake of a tight money market, as well as overly aggressive bids,” said Genghis Capital in a note to its clients on Thursday morning.

CBK did not offer a reason for the cancellation in the notice.

This is the second time an auction of a government security has been cancelled in the past one month. The auction of the 364-day Treasury bill on December 28, 2016 was also cancelled due to low bidding from investors in the festive period.

READ: Short term Treasury bill auctions fail to hit target on low investor appetite

ALSO READ: CBK cancels 364-day paper auction as investors stay off the market

Tight liquidity

Liquidity has tightened in the market this month on CBK withdrawal as it looks to keep a lid on shilling exchange rate volatility.

The short term 182-day and 364-day Treasury bill auctions that took place on Wednesday saw an undersubscription, with investors bidding Sh6.4 billion against the targeted Sh12 billion (53 per cent performance rate).

The Sh30 billion targeted in the reopened bond was meant for budgetary support, where the government needs funds to plug a gaping deficit of Sh516 billion for the current fiscal year.

The government still has the option of going for external financing, most likely through syndicated loans.