Capital Markets

Average maturity profile of Treasury bonds rises to nine years

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National Treasury building in Nairobi. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • The Central Bank of Kenya (CBK) said on Tuesday it has also cut the share of domestic debt held in form of short-term Treasury bills to 18 percent from 34 percent in June 2019, further easing the refinancing risk.
  • In the current fiscal year, the Treasury is borrowing Sh1.029 trillion to fill its budget hole, out of which Sh616.8 billion is coming from the domestic market.
  • There have been growing concerns over the sustainability of Kenya’s public debt, which has ballooned to Sh7.71 trillion from Sh3.62 trillion five years ago.

The average time to maturity for Treasury bonds has lengthened to nine years from 7.5 years in June 2019 following the sustained issuance of longer-dated papers, easing the government’s worries about refinancing its domestic debt.

The Central Bank of Kenya (CBK) said on Tuesday it has also cut the share of domestic debt held in form of short-term Treasury bills to 18 percent from 34 percent in June 2019, further easing the refinancing risk.

“Average time to maturity for bonds has increased from 7.5 years in June 2019 to nine years…it has helped maintain stability in the yield curve. The ratio of T-bills to bonds has also fallen from 34 percent/ 66 percent to 18 percent/82 percent currently, a remarkable achievement in terms of stability in government’s borrowing programme,” said CBK governor Patrick Njoroge on Tuesday.

In the current fiscal year, the Treasury is borrowing Sh1.029 trillion to fill its budget hole, out of which Sh616.8 billion is coming from the domestic market.

The current stock of outstanding Treasury bonds stands at Sh3.21 trillion, while that of T-bills stands at Sh724.9 billion.

There have been growing concerns over the sustainability of Kenya’s public debt, which has ballooned to Sh7.71 trillion from Sh3.62 trillion five years ago.

While most of the attention in the last few years has been on the sustainability of the country’s external debt, the heavy annual maturities of domestic debt were also worrying the CBK, especially due to the short average time until maturity for bonds that had fallen to just 4.1 years in June 2018.

This saw the regulator actively try to lengthen the profile of bond issuances while reducing reliance on Treasury bills for budget deficit financing.

Investors have also helped by showing bigger appetite for bonds in relation to Treasury bills in recent issuances, attracted by better yields on the longer papers as the CBK continues its policy of rejecting expensive bids, especially on the Treasury bill market.

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