Money Markets

CBK rejects costly T-bond bids despite budget hole

Central Bank head office in Nairobi. FILE PHOTO | NMG
Central Bank head office in Nairobi. FILE PHOTO | NMG 

The Central Bank of Kenya (CBK) has continued a trend of rejecting expensive money in primary security sales, keeping interest rates on this month’s government bond auction down.

This is despite the pressure on the Treasury to increase borrowing in the last two months of the fiscal year.

CBK took up Sh19.9 billion out of the Sh38.8 billion investors offered in this months sale of reopened 10 and 15-year bonds, which had a target of Sh40 billion.

This is even as the government remains behind schedule in its domestic borrowing target of Sh280 billion for the fiscal year, having taken up a net of Sh178.6 billion (64 per cent) by the end of last month.

“With two months remaining in the current financial year coupled with the anticipated Supplementary Budget estimates to tame the runaway essential food costs, the government finds itself with a herculean task of plugging the current budget deficit,” Genghis Capital analyst Churchill Ogutu.

“Notably, this is the third consecutive double-bond re-opening issuance and it is not entirely lost that the CBK is intent on clamping against aggressive yield bidding. We be believe the most likely scenario...is the CBK will come back to the market for a tap sale.”

The rate of accepted bids stood at 12.47 per cent for the 10-year paper, against an average of 12.6 per cent on offers, while that of the 15-year was 13.1 per cent against an offer average of 13.35 per cent.

Analysts had projected the bid rate on the 10-year paper to fall between 12.5 and 12.8 per cent, and that on the 15-year to come in between 13 and 13.55 per cent.

The two reopened bonds mature in 2020 and 2014 respectively, meaning they effectively have 3.4 and 7.4 year durations.