Markets & Finance

Domestic debt hits Sh1.2trn on Jan bond sales

investor

An investor monitors the electronic board at the Nairobi Securities Exchange. Appetite for government securities remains high. FILE

The government’s domestic debt hit Sh1.2 trillion at the end of January, following additional sales of treasury bonds.

The stock of outstanding treasury securities went up by Sh17 billion during the last week of January, offsetting a reduction in the Central Bank of Kenya (CBK) overdraft that went down from Sh34.2 billion to Sh21.6 billion during the month.

The stock of foreign debt stands at Sh888 billion, according to the latest update dated October last year, putting Kenya’s public debt at about Sh2.1 trillion.

The amount, estimated to be equivalent to about half of GDP, is considered manageable as per IMF and World Bank debt sustainability ratios.

The government uses bonds to finance budget deficits and fund infrastructure projects, with interest payable currently ranging between 11 and 13 per cent.

Investor appetite for government securities remains high, with the 10-year-fixed treasury bond that closed in the last week of January attracting bids worth Sh40 billion, out of which Sh15 billion was accepted.

“Any return on the government paper that is above 10 per cent remains attractive to investors, including offshore investors.

‘‘At the point of issuing this 10-year bond there was a lot of liquidity in the market,” said Robert Gatobu, a dealer at Bank of Africa’s treasury.

Banks were the main takers of the 10 year-bond issue, raising their holdings of government securities by almost Sh12 billion to Sh566.9 billion between January 24 and January 31.

According to Mr Gatobu, the same level of interest is expected to be maintained for the reopened 15-year Sh10 billion budgetary support bond currently on offer.

He said that while the Eurobond issue expected in the coming month is expected to dominate investor interest, lack of finer details in that issue means that investors are more than willing to take up the bond issues on offer currently, especially with the attractive interest rates.

According to Genghis Capital, the secondary bond market has also seen increased activity in line with the government’s bond policy which seeks to promote secondary trading and also increase holdings of government debt in longer term paper.

One of the key objectives of the bond programme is to lower both refinancing risk and cost of borrowing by the Government.

“The Government’s Benchmark Bond Programme to increase liquidity around selected bonds and promote the evolution of a more active hybrid bond market, has proved to be effective as bond market activity tramples over equity market activity,” said Genghis Capital in their January fixed income update.