The Central Bank of Kenya (CBK) has raised Sh34.7 billion from its auction of a re-opened two-year bond whose sale closed on Wednesday.
The paper was oversubscribed by 17.9 percent with investor bids totalling Sh47.1 billion against Sh40 billion on offer.
The CBK accepted Sh34.7 billion from the bids at a weighted average rate of 16.9922 percent, with buyers set to pay a premium price of Sh102.8368 for each Sh100 to adjust for accrued interest on the paper.
The next interest payment date is August 19, 2024. Bonds pay interest every six months.
The market-weighted average rate of all bids was, however, higher at 17.1469 percent, which drove down CBK’s acceptance rate as the apex bank rejected aggressive or expensive investor bids.
While the weighted average rate of accepted bids stood above the paper’s coupon rate of 16.9723 percent, the return due to the paper’s new investors is considerably lower than the 17.7358 percent rate at the bond’s most recent reopening in October.
Proceeds from the bond are expected to be entirely applied towards new borrowing for the fiscal year ending on June 30.
The continued rejection of aggressive investor bids stands largely in line with expectations as the markets begin pricing in a cool-down in domestic interest rates over the near term.
“The Exchequer appears determined to grind yields lower amid an easing risk landscape, even as investors test the assertiveness of the CBK,” noted analysts at the AIB-AXYs Africa stock brokerage.
The CBK has stepped up its rejection of expensive investor bids having recently raced ahead of its borrowing targets for the year, both domestically and externally, after the outsized acceptance of Sh240.9 billion from February’s infrastructure bond and the issuance of a new Eurobond.
The new Eurobond issuance further eliminated perceived sovereign risks attached to the maturity of a similar paper in June, setting the stage for lower interest rates at home.
At the same time, the government is expected to trim its fiscal deficit for the year to June through its second supplementary budget.
