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CBK tests investor appetite with Sh40bn long-term bonds
CBK is hoping for a repeat of the demand in its December issuance, which is also being floated amid relatively high shilling liquidity in the money market.
The Central Bank of Kenya (CBK) is set to test investor appetite for long-term government securities with a Sh40 billion reopening of two papers with 15 and 20 years to maturity for its December bond sale.
The sale, which runs between November 27 and December 3, sees the CBK reopening a 25-year bond that was first sold in May 2021, giving it 20.4 years to maturity, and a 30-year bond first sold in February 2011 that now has 15.2 years to maturity.
In the last two bond sales carried out earlier this month, investors signalled to the government that they are willing to lend long-term if they get favourable coupon rates in a period of falling interest rates.
The November bond sales involved two separate issuances in which the CBK reopened four papers, comprising a pair of 15-year bonds that had 8.7 years and 11.4 years to maturity, a 20-year bond with seven years to maturity and a 25-year bond that had 21.9 years until it falls due.
These bonds pay investors interest at rates of between 12 and 14.2 percent, which is well above the rates of between 7.8 percent and 9.4 percent that are available on short term Treasury bills.
Investors offered the government a cumulative Sh208.75 billion in the two issuances, with the CBK taking up just over half of this amount at Sh107.6 billion.
The maturity profile of these bonds, according to analysts, would have appealed to buyers who normally have a long investment profile such as pension funds, but retail investors have also bought in as returns from other assets such as unit trusts and fixed bank deposits trend lower.
The general decline in interest rates has tracked the easing actions of the CBK’s monetary policy committee, which has cut rates in its last eight meetings held since August 2024.
The Central Bank Rate (CBR) currently stands at 9.25 percent, having been cut by 0.25 percentage points in the latest meeting on October 7. The CBR stood at 13 percent before the current easing cycle started in August 2024.
Now, the CBK is hoping for a repeat of the demand in its December issuance, which is also being floated amid relatively high shilling liquidity in the money market.
The 25-year bond, which has a coupon of 13.92 percent, has an outstanding amount of Sh90.5 billion. It has been reopened on four other occasions since its issuance in May 2021, the most recent of which was in May 2022.
The 30-year bond, which was dubbed a Savings Development Bond (SDB) when it was floated in 2011, has a coupon of 12 percent. It was most recently reopened in September, when it raised a modest Sh2.4 billion against a target of Sh20 billion.
It was also reopened in June this year alongside a 15-year bond from 2020 that carried a coupon of 12.75 percent.
The SDB netted Sh13.8 billion from bids worth Sh16.6 billion in this sale, where it was outperformed significantly by the 15-year paper which raised Sh57.9 billion from bids of Sh84.7 billion. This points to a possible preference by investors for the 25-year bond in the December sale, on account of the superior coupon compared to that of the SDB.
