The Central Bank of Kenya (CBK) has mopped a further Sh27.2 billion from the third auction of May’s three-year bond.
The second tap sale of the paper which closed on Friday had an equal value of bids to acceptance and beat the advertised Sh20 billion value.
Investors in the bond are expected to earn a return of 14.228 percent which represents the allocated average rate for accepted bids and the paper’s coupon rate at the primary auction.
The overperformance of the tap sale aligns with CBK's bet on investors preferring shorter-dated securities amidst a rising interest rate environment which would expose buyers of government securities to mark-to-market losses on longer-tenured bonds.
The double tap sale had already pointed to the government’s increased dependence on the new three-year paper to lift domestic borrowing outside Treasury bills in the current fiscal year to June 30.
Combined, the government has now realized Sh58.1 billion from the triple bond sale whose proceeds are directed to new borrowing and redemptions.
The three-year bond became the first fully subscribed bond outside the infrastructure bond this year with investors seeing its short tenure as a sweet spot.
Interest in the most recent tap sale has subsequently wrestled investor appetites away from Treasury bills as mirrored in last week’s Treasury bill auction undersubscription.
The Treasury bills auction for instance marked a 91.87 percent subscription rate as bids received fell short of the Sh24 billion target at Sh22 billion.
Nevertheless, the shorter-dated 91-day Treasury bill was more than three times oversubscribed with bids reaching Sh14.2 billion against a lower Sh4 billion target.
The large bias for the 91-day Treasury bill is set to extend further as investors hedge against duration risks while interest rates will rise on the preference for risk-adjusted returns in the face of rising interest rates and sustained high inflation.
At the same time, pressure on the government to meet its domestic borrowing target is expected to reflect on the securities yields as the CBK is forced to accept aggressive bids to plug the budget financing hole.
