Bondholders take up Sh39 billion in switch auction

Business Reporter

Nation Media Group

Holders of the two-year bond that matured on Friday took up the greater part of the switch auction that closed on November 30 which served to cushion the exchequer from a potential cash crunch at the start of 2023.

Data from the Nairobi Securities Exchange (NSE) secondary bond market shows only Sh16.8 billion was outstanding ahead of the January 9 redemption date from the FXD1/2021/002 two-year bond as of December 31.

Initially, the bond had a maturity size of Sh55.85 billion before the issuance of the switch bond implying that holders of the paper rolled over payments of Sh39 billion to the new six-year infrastructure bond which covered the switch auction.

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Meanwhile, holders of 91; 182 and 364-day T-bills only switched maturities of Sh8.3 billion to the switch bond with the Treasury now expected to meet redemptions of Sh23.7 billion to the bill holders.

Holders of the 364-day T-bill accepted to switch maturities of Sh4.99 billion, 91-day paper holders switched maturities worth Sh2.57 billion while holders of the 182-day paper did Sh700 million.

According to data from the Central Bank of Kenya (CBK), the Treasury will meet redemptions of Sh23.7 billion after accepting bids worth Sh31.4 billion from investors in last week’s T-bill auction.

The CBK issued the Sh87.8 billion switch auction on November 22, locking initial takers of the offers to holders of maturities of the same amount which were due on January 9 as a hedge against a potential cash-crunch at the beginning of the year.

Cumulatively, the targeted bill and bondholders switched maturities of Sh47.8 billion to the six-year infrastructure bond serving to ease fears about the anticipated cash squeeze.

Subsequently, however, CBK invited bids from third parties through a tap sale from which it accepted Sh10.8 billion from a target of Sh20 billion.

Currently, the Treasury is seeking Sh50 billion from two re-opened five- and fifteen-year bonds whose auction closes tomorrow.

The Treasury had previously deployed switch bonds as an avenue to averting potential liquidity risks in June 2020.

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The bond turnover in the domestic secondary market declined by 59.4 percent during the week, ending January 5.

In the international market, yields on Kenya’s Eurobonds declined by an average of 12.8 basis points, with 2024 maturity declining by 14 basis points.

The CBK notes that the yields on the 10-year Eurobonds for Ghana and Angola also declined.

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