The Central Bank of Kenya (CBK) is seeking to raise Sh40 billion from two reopened bonds as it sticks to issuing papers with pre-determined returns to investors in its bid to prevent a spike in interest rates.
The apex bank has invited investor bids for reopened 15-year and 25-year bonds, which are set to sell at a premium as interest rates continue to move lower.
Investors are paying a premium to the par value of Sh100 to buy into bonds with high coupon rates as interest rates fall and prices increase.
Bond prices are usually on the rise in a low-interest-rate environment as returns on newly issued papers fall, forcing investors to pay more to hold higher-yielding securities.
The CBK has avoided issuing new bonds even as interest rates fall and has instead favoured reopened issues to avoid interest rate shocks.
Both the 15-year and 25-year bonds are trading at a premium in the Nairobi Securities Exchange secondary market, with the former recording a Sh101.71 premium in its last trading session.
Investors buying the two bonds face a further premium to cover accrued interest payments from the last coupon settlement.
The 15-year bond, which has 8.7 years to maturity, attracts an accrued interest of Sh4.2715 per Sh100 while the 25-year paper with 21.9 years to maturity attracts an accrued interest of Sh1.3642 per Sh100.
The premium on the two securities allows CBK to offset the differences in the papers’ price and par value without affecting the instruments’ coupon, which remains set to its primary or first issuance.
The two papers will remain on sale until Wednesday next week, while successful bidders will be notified of their payment key and amount payable on Friday, November 21. Proceeds from the dual-bond sale will be channelled towards budget support.
The government remains on course to meet its domestic borrowing requirement from the sale of Treasury instruments in the 2025/26 fiscal cycle, supported in large part by declining interest rates.
Falling rates have forced investors to pile into government securities in anticipation that future sales of Treasury bills and bonds could result in relatively lower returns.
Cuts to the benchmark interest rates by the CBK have induced the lower interest rates on government securities.
The government’s net domestic borrowing target for the fiscal year running to June 2026 stands at Sh613.5 billion.
The target for domestic borrowing is lower than the estimated Sh854.5 billion which partially covered the budget deficit in the previous fiscal year to June 2025.
