Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
CBK takes Sh64bn from September bonds amid high oversubscription
The reopened 30-year bond was undersubscribed with bids worth Sh8.07 billion, signalling that investors were largely unwilling to lend to the government at its coupon (interest) rate of 12 percent.
Bond investors offered the government Sh97.3 billion against a demand of Sh40 billion in an auction of reopened 20- and 25-year papers, seeking to lock in returns of up to 14.2 percent amid expectations of a decline in interest rates in the near term.
The Central Bank of Kenya (CBK) took up Sh61.44 billion of these bids, enabling the government to exceed its target of Sh60 billion from this month’s bond sale. This also included a reopened 30-year paper that was auctioned earlier on September 3.
The 30-year bond had earlier been undersubscribed, raising only Sh2.4 billion from bids worth Sh8.07 billion, signalling that investors were largely unwilling to lend to government at its coupon (interest) rate of 12 percent, which equates to a net return of 10.8 percent after a 10 percent withholding tax on interest is applied.
Investors instead favoured the 25-year tranche, which carries a coupon rate of 14.18 percent, offering Sh63.9 billion, with the CBK accepting Sh37.93 billion.
The 20-year bond, whose interest rate stands at 13.2 percent, meanwhile realised offers worth Sh33.38 billion and an accepted amount of Sh23.5 billion.
The net returns on the 20- and 25-year bonds, after withholding tax, stand at 11.9 percent and 12.76 percent respectively, which compare favourably with August’s reopened 14- and 19-year infrastructure bonds (IFBs), which came with tax free coupons of 12.5 percent and 12.96 percent respectively.
The CBK was also hoping to ride on the ample liquidity in the money market to boost the September issuance, similar to the heavily oversubscribed August IFB sale, which raised a total of Sh274.8 billion from primary and tap sales that targeted Sh140 billion.
“We expect the entire amount being sought to be met given liquidity conditions in the market. These issuances are consistent with the CBK’s agenda to issue medium and longer tenor debt with the decline in interest rates,” said analysts at Sterling Capital in a note ahead of the bond sale.
Investors are, however, also aware of the government’s tight fiscal headroom — despite the effort to front load on its domestic borrowing target — resulting in some making aggressive bids on the primary bonds market.
In the September bond, investors asked for an average yield of 13.72 percent on the 20-year paper and 14.24 percent on the 25-year bond, with the CBK settling at 13.58 percent and 14.14 percent respectively for accepted bids.
On the 30-year bond sold earlier, they asked for a yield of 14.37 percent, with the CBK settling for 13.96 percent on accepted offers, resulting in a price discount of Sh12.33 per bond unit of Sh100 to make up for the yield-coupon difference.
By the end of August, the Treasury had borrowed a net of Sh260 billion, equivalent to 41 percent of the full-year total target of Sh635.5 billion.
With the September bonds raising a total of Sh63.8 billion, against bond maturities of Sh16 billion, the net borrowing is set to rise past Sh300 billion by the end of this month. Treasury bill maturities of Sh102.1 billion are likely to be refinanced fully through rollovers in the weekly sales.
