The Central Bank of Kenya (CBK) has raised Sh10.602 billion from the tap sale of the three-year bond, marginally exceeding its target of Sh10 billion.
Subscribers to the second sale of the short-term paper have booked a return of 14.228 percent, which equals the coupon rate that was set in the primary auction.
The government’s fiscal agent took nearly all of the bids, having received offers of Sh10.603 billion.
The oversubscription comes amid concerns of thinning liquidity in the money markets as demonstrated by the interbank lending rate peaking at nearly 10 percent.
Other reasons blamed for the recent bond underperformance have been reduced foreign investor participation in the local market and reduced participation by banking sector players in bond auctions.
Mark-to-market losses and better returns from lending have seen commercial banks slow down on bids for government paper.
The first sale of the three-year Treasury bond became the first fully subscribed paper this year outside the tax-free Treasury bond after investor subscriptions reached Sh20.74 billion against a target of Sh20 billion to mark a 103.72 percent performance rate.
The full subscription of the tap sale is expected to boost government revenue mobilisation efforts through local borrowing even as it lags the required run rate to the end of the current fiscal year to June.
According to the Treasury statement on exchequer revenues and net issues, proceeds from domestic borrowing including rollovers stood at just Sh406.6 billion through 10 months to April 2023 against a target of 886.5 billion.
While investors have largely shunned bonds, interest has turned towards the shorter-dated Treasury bills which are seen as offering higher risk-adjusted returns without exposure to duration-related risks such as rising interest rates.
Last week’s Treasury bills auction, for instance, saw bids worth Sh36 billion against a target of Sh24 billion.
