Markets & Finance

State’s one-year bond to attract over 20pc interest

The government could pay a steep price of above 20 per cent as interest to investors in the Sh20 billion one-year bond it has floated for budgetary support.

The Central Bank of Kenya (CBK) began selling the Treasury bond Monday. The price will be determined by the market, but is expected to follow the trend of more recent issues.

The latest Treasury bond comes less than a month after the government borrowed Sh30 billion, also for budgetary support, through a two-year bond.

The new borrowing also comes at a time when interest rates are rising.

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The Sh30 billion bond was sold at 19.062 per cent yield while a 364-day Treasury bill that was sold last week had a 21.498 per cent rate.

Analysts say that investors are expected to ask for a higher rate since final payments will be amortised and not a bullet or one-off payment.

“Investors are looking for a premium and the fact that the bond is going to be redeemed early, technically a 91-day being rolled over four times, then investors will be looking for a huge premium,” said Agnes Achieng’, a research analyst at Alpha Africa Asset Managers.

Ms Achieng’ added that rates can further rise to between 22 per cent and 24 per cent. The government is also issuing bonds with shorter tenors to avoid paying high interest rates over a long time.

“This (high interest rates) combined with the relatively low risk levels, compared to equities, has attracted a lot of investors to go for government debt,” said a market report by Nairobi-based ABC Capital.