A section of the Central Bank of Kenya building in Nairobi. PHOTO | FILE
The Treasury missed its target in the reopened Sh15 billion, 15-year bond by Sh3.2 billion as it raised Sh11.8 billion following the close of sale this week, with demand weighed down by the recent sale of an infrastructure bond.
The most recently floated one-year and six-month Treasury bills also failed to meet their targets as the continued liquidity mop-up has also affected the market for the government securities.
The mop-ups, meant to ensure that the shilling is not unduly weakened, limited resources at hand for investors to invest. Auction results published by the Central Bank of Kenya (CBK) show that the bond had a 79 per cent subscription rate, compared to the 258 per cent rate seen for the Sh15 billion, 12-year infrastructure bond’s primary sale last month.
The infrastructure bond also had the advantage of not attracting a withholding tax charge, unlike the 15-year one.
The total number of bids received for the 15-year bond was 242, amounting toSh11.9 billion. The weighted average rate for successful bids was 12.42 per cent, according to the CBK notice published on Monday.
The issue, being a re-opening type, relied on and offered the earlier March 2010 coupon of 10.25 per cent which some investors thought was low given that market interest rates are higher.
The investors, however, bid in such a way that they drove the yield to the market rate of above 12 per cent.
“The infrastructure bond tap sale, the low coupon on the bond and the subdued interest from commercial banks could have contributed to the lower subscription levels,” said Alexander Muiruri, Kestrel Capital head of fixed income.
Investors will hold it for 10.38 years rather than the full 15. Unlike the previous three months, November has also not had heavy redemptions of maturing bonds, which provide a source of inflow for new bond issues.
“This has been a boon to the government in terms of increasing its cumulative domestic borrowing,” said Mr Muiruri. He said that in order to lengthen the maturity profile of domestic debt, Treasury had to take a large proportion of the bids in the auction.
According to Kestrel estimates, the Treasury has recorded Sh33.9 billion in cumulative domestic borrowing this financial year against a net payment of Sh9.9 billion made at the close of October 2014.
The cumulative borrowing represents 34 per cent of the revised borrowing target of Sh101.7 billion (from Sh190 billion) for the 2014/15 financial year.
On liquidity mop-ups, CBK has been coming into the market almost on a daily basis and using Repos and term auction deposits in support of the shilling. In the first three days this week, CBK mopped up Sh35 billion through Repos.
The performance of the shorter-term government issues has also been coming in below par, especially on the 182-day Treasury bill. This week’s auctions of Sh4 billion and Sh5 billion worth of 182-day and 364-day T-Bills respectively brought a combined bid return worth Sh5.6 billion.
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Note: The results are not exact but very close to the actual.
