The Central Bank of Kenya (CBK) rejected bids worth Sh12 billion in the January Treasury bond sale after investors asked for upwards of 19 percent on the five-year tranche of the bond.
Investors put up bids worth Sh37.1 billion against the State’s target of Sh35 billion but saw the CBK take up Sh25.02 billion from the dual-tranche paper whose sale closed yesterday.
The issuance comprised a new three-year bond and a third reopening of a five-year bond first sold in July.
On the three-year option, investors offered the government Sh29.09 billion, asking for an average return of 18.63 percent. The CBK took up Sh22.07 billion, at an average rate of 18.39 percent.
On the reopened five-year paper, bids stood at Sh8.06 billion at an average asking rate of 19.07 percent as investors sought to test the monetary regulator’s resolve on keeping a lid on rates. The CBK took up Sh2.9 billion from this paper at an average of 18.77 percent.
The five-year bond’s first sale in July 2023 had yielded a coupon of 16.84 percent, while two subsequent reopenings in August and October saw rates go up to 17.95 percent and 17.99 percent respectively.
The tax-free infrastructure bond sold in November paid 17.93 percent, effectively setting a floor of how much investors would expect from ordinary bonds.
Analysts had projected that the January bond sale would test the 18 percent mark in yields, pointing also to the decision in early December by the Monetary Policy Committee (MPC) of the CBK to raise the base rate by two percentage points to 12.5 percent.
Pre-auction analysis by Genghis Capital., Sterling Capital and AIB-AXYS Africa projected bids being valued at between 18.3 percent and 18.9 percent for the bond offer.
The recent adjustment –via the Supplementary Budget—in the net domestic borrowing target for the fiscal year to Sh474.5 billion from Sh415.1 billion has also signalled higher appetite for funds by the government, giving investors more reason to test the CBK’s resolve on bid prices.
The need to finance some Sh199.3 billion worth of domestic debt coupon and principal repayments due in January is likely to push the Treasury into a tap sale of the bond, allowing a mop-up of some of the rejected offers.