The Central Bank of Kenya (CBK) is seeking to raise Sh60 billion from four reopened bonds this month, even as the apex bank continues its quest to drive down interest rates on the securities.
The four reopened papers are being sold in pairs with the first auction, including two and three-year bonds with remaining terms to maturity of 1.2 and 2.6 years, respectively.
The second pair of reopened bonds covers five and 10-year papers, both offered first to investors last year and have tenors of 4.1 and 8.78 years, respectively.
The first pair of bonds will be on sale until Wednesday, while the latter will remain on auction until June 12.
The CBK seeks to drive down interest rates by influencing bids around the papers’ coupon rates, which represent the weighted average rate for accepted bids at their most recent issue.
The two-year paper, for instance, closed its most recent sale at a weighted average rate of 16.9723 percent, 18.3854 percent for the three-year paper, 16.844 percent for the five-year bond, and 14.151 percent for the long-dated 10-year bond.
At the same time, the CBK will be seeking to nudge investors to longer-term securities by selling more of these bonds and scaling down its reliance on short-dated papers that dominated auctions when interest rates were rising rapidly.
The apex bank has seen some success in achieving the pair of targets based on the performance of its recent 10-year bond. Between March and May, for instance, the CBK mobilised Sh34.7 billion from a new 10-year paper, which has had subsequent sales, including re-openings and tap sales, that have helped drive down the weighted average rate of accepted bids to 16.2273 percent from 17.7593 percent at the first auction.
The CBK has sought to drive interest rates even lower, having first set a coupon of 16 percent for the 10-year paper first auctioned last March.
Bids on longer-dated bonds have largely underperformed as investors flock to the short end, leading to the CBK missing its revenue mobilisation target from domestic borrowing.
Investors in government securities are the biggest winners from the high interest rates as their real yield (inflation-adjusted) returns increase.
The CBK is however anticipating a fall of interest rates on Treasuries supported largely by a lower than projected fiscal deficit and reduced inflation.
Recent external disbursements from multilateral lenders such as the World Bank and the International Monetary Fund (IMF) have for instance cut the government’s dependence on the domestic credit markets.
At the same time, inflation has trended downwards over recent months, hitting the government desired mid-point of 5.1 percent last month (May).
