The Central Bank of Kenya (CBK) took Sh7 billion from the tap sale of a 10-year paper, whose auction closed last week, falling short of its projection of raising Sh15 billion.
Investor bids on the paper were largely muted at just Sh7.1 billion as the apex bank looked to lock in takers to a determined return of 16.2273 percent.
Buyers of the paper will pay a premium of Sh100.9926 per Sh100 to take into account accrued interest on the security, whose first coupon payment will be made on September 23, 2024. Bonds pay interest twice a year, six months apart.
The tap sale brought total proceeds from the paper first auctioned in March to Sh34.7 billion after the mobilisation of Sh27.7 billion at the paper’s primary sale and subsequent tap sale and re-opening to investors.
The look-warm reception to the paper by investors seemingly represents CBK’s struggles in bringing down interest rates on government securities whilst stretching out the yield curve outwards.
The 10-year paper was the first long-dated Treasury to come to market in more than a year as the CBK sought to move away from issues of shorter-dated papers which have defined the bulk of Treasury auctions in the past year.
CBK dictated returns to investors from the paper by placing a 16 percent coupon, contrary to the traditional issuances of new papers whose return has been largely market-determined.
Initially, investors defied the CBK by lifting the market-weighted average rate of return to 17.7593 at the paper’s primary auction.
The apex bank nevertheless rejected expensive bids, bringing down the weighted average rate of return to 16.5189 percent.
CBK found more success in driving interest rates further down at the paper’s re-opening when the weighted rate of return fell to 16.2273 percent.
The bank has previously expressed optimism about the receding of interest rates on Treasury instruments, attributing the change to an improving macroeconomic environment including a reduced budget deficit target.
Additionally, perceived sovereign default risks have shrunk following the partial redemption of Kenya’s debut Eurobond.
