The Central Bank of Kenya (CBK) has reopened a bond with a coupon rate of 12.65 percent, seeking to further lower the cost of public borrowing amid tight fiscal headroom for the government.Â
A prospectus for the January 2025 bond sale published on Monday shows the CBK is reopening 15-year paper first issued in 2018 and a 25-year bond whose debut sale was done in 2022, with a combined target of Sh30 billion.
The 15-year bond comes with a coupon of 12.65 percent, with a period to maturity of 8.3 years, while the 25-year has a rate of 14.18 percent and a period to maturity of 22.8 years. The papers will be on sale until January 15, 2025.
Interest rates on government securities have been falling in recent auctions, largely reflecting the progressive cut in the CBK’s base rate from 13 percent to 11.25 percent between August and December.
While Treasury bills have had a more pronounced fall in rates over the last two months, the 10-year bond auctioned last week also signalled that the longer end of the debt spectrum is also starting to align with the CBK’s push for lower rates.
The reopened bond saw investors taking an effective return of 14.68 percent on accepted bids, against the paper’s coupon (or actual interest rate) of 16 percent.
This meant that they were willing to pay a premium on the face value in order to secure the bond. The successful bidders averaged a price of Sh110.17 for every unit of Sh100 on the paper.
Its falling yield indicates that investors are now happy to take a lower return to lend to the government for a 10-year period compared to what they were willing to take earlier this year.
Treasury bills
On the Treasury bills end, last week’s auction saw the 91-day T-bill’s rate at 10.03 percent, down from 15.7 percent on October 3. The 182-day rate has fallen from 16.6 percent to 10 percent in the period, and the 364-day rate from 16.8 percent to 11.75 percent.
The January bonds will also help the Treasury to lengthen the maturity profile of domestic debt, which has shrunk over the past year due to issuance of short dated securities in a high interest rate environment.
As at June 2024, the average time to maturity for Kenya’s overall public debt fell to 7.8 years from 9.4 years in June 2023. On domestic bonds, the time to maturity shrunk to 7.5 years from 8.6 years in 2023.
The proportion of bonds with remaining time to maturity of between one and five years increased to 39.8 percent from 36.9 percent in the period, while those with more than 10 years’ tenor fell to 22.2 percent from 34.3 percent.
