Capital Markets

Central bank raises Sh31 billion as May bond auctions fall below target

cbk

Central Bank of Kenya. FILE PHOTO | NMG

Summary

  • The National Treasury has raised Sh31.73 billion from the sale of two May bonds, falling below the target of Sh60 billion.
  • The Central Bank of Kenya, the government’s fiscal agent, received bids worth Sh43.11 billion from the sale of the bonds and rejected Sh11.3 billion.
  • The CBK has fallen short of its target where it declines bids mainly on account of investors seeking higher interest rates than it is willing to pay.

The National Treasury has raised Sh31.73 billion from the sale of two May bonds, falling below the target of Sh60 billion.

The papers were a new 10-year bond and a reopened 25-year paper and the auction represents a 52.8 percent success rate.

The Central Bank of Kenya, the government’s fiscal agent, received bids worth Sh43.11 billion from the sale of the bonds and rejected Sh11.3 billion.

The CBK has fallen short of its target where it declines bids mainly on account of investors seeking higher interest rates than it is willing to pay.

Major investors in treasuries have been pushing for higher rates amid rising inflation and the weakening of the shilling against major world currencies.

The 10-year bond received bids worth Sh32.8 billion with the government accepting Sh28.6 billion and rejecting Sh4.2 billion.

The longer-dated paper attracted Sh10.2 billion from investors with the fiscal agent accepting only Sh3.06 billion.

The 10-year bond had an average interest rate of 13.49 percent while the rate on the 25-year security came in at 13.97 percent.

Lukewarm interest

The lukewarm interest in the long-term bond and rejection of most of the bids is a signal that investors feel they are not getting enough compensation for the extra years they stand to hold the paper compared to the 10-year bond.

Institutional investors led by banks, pension funds, and insurers usually state the interest they want to be paid, while most small investors typically settle for the market average.

The market average is largely influenced by the bids from the big investors dominating the treasuries market.

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