The Central Bank of Kenya (CBK) has accepted Sh31.5 billion from January’s bond auction that closed on Tuesday, raising substantially less than the target of Sh50 billion.
The gap between the acceptance rate and the bid amounts is primarily attributable to the rejection of expensive quotes by the CBK.
Investors bid a total of Sh41.6 billion, with Sh10.1 billion of the offers rejected in the auction which saw a significant increase in returns on the fixed-income instruments.
The government has been under reduced pressure to accept expensive bids in the January bonds issue having seen no maturities in December and with no further maturities expected in February.
At the same time, the CBK has seen reduced maturities in January after switching some of the expected redemptions through November’s switch auction.
Investor bids were concentrated on the shorter maturing paper which has 2.4 years to maturity with bids totalling Sh27.6 billion as investors weighed in duration risks to shun the longer-dated option.
Successful subscribers to the pair of the reopened bonds will, however, both earn a premium with the weighted average rate of accepted bids standing at 12.879 and 14.186 percent on the five and 15-year securities respectively.
The greater return is in contrast to coupon rates of 11.667 percent and 13.942 percent each mirroring continued pressure on the government to payout a premium to bondholders.
Investors in government paper have been demanding a premium return on the Treasury securities on the backdrop of high inflation which has seen investors grow their preference for risk-adjusted returns.
Despite falling off the target, the CBK has marked a rediscovery of investor interests in government paper with the previous reopened bond auction in December having returned a subscription rate of 76.4 percent.
The increased investor participation has been supported in part by improved liquidity in the money markets during the course of the bond’s auction with government payments having anchored the strengthened liquidity levels.
The sum total of Sh31.5 billion raised in the issue is expected to be channelled towards new borrowing given the trim on redemptions this month.
