The Treasury has opened a tap sale on the July bond, looking to mop up the Sh13.2 billion that it left on the table in the initial sale which raised Sh38.6 billion.
This sale, which runs until Friday, is seeking an additional Sh20 billion, which would take the net borrowing from bonds this month to Sh58.6 billion if the full amount is realised.
This would see the government achieve about 10 percent of its full fiscal year domestic borrowing target of Sh586.5 billion.
The pro-rated borrowing target for July stands at Sh48.9 billion, meaning that the State is looking to front-load on debt on the domestic front, largely with an eye on potential interest rate increases down the road.
In the initial sale of the dual-tranche bond, which comprises a reopened 10-year paper first sold in 2016 and a new five-year offering, investors demanded an average of 16.6 percent and 17.03 percent respectively for the two tranches.
The coupon rate for the 10-year reopening (which has three years to maturity) eventually settled at 15.04 percent, while the five-year is paying 16.84 percent. These coupons are now applicable to bids on the tap sale.
Analysts expect the government will come under pressure to take up even more expensive offers from investors going forward, given the concerns about the performance of the economy whose slowdown would hurt tax revenue.
“In the coming Treasury bond bidding sessions, we foresee investors testing CBK’s resolve on accepting rates higher than 17 percent,” said analysts at AIB AXYS Africa, a city-based investment bank.
The elevated domestic borrowing target of Sh586.5 billion this year (against Sh475 billion last year) also means that the State cannot afford to ignore an opportunity to take up funds.
It also has to take into account the need to roll over maturing debt, as well as interest payments that eat up revenue.
While there are no Treasury bond maturities due this month, the State is still spending Sh173 billion to service debt via Treasury bill maturities, and interest payments on T-bills and bonds.
By frontloading on this year’s borrowing, the government is also keeping an eye on potential hiccups down the road should market conditions turn sour.
This situation was seen in the previous fiscal year when the Treasury was on course to miss its target until the oversized performance of the June infrastructure bond that raised Sh213 billion closed the gap at the last minute.
