The Central Bank of Kenya (CBK) is seeking to raise Sh30 billion from two re-opened bonds –a 10 and 20-year paper— whose sale started Wednesday until September 18.
The 10-year paper has a coupon –interest rate set in the first auction— of 16 percent but investors will be free to quote higher rates in the current sale. The bond was first sold in March this year and has 9.5 years left to maturity.
The 20-year paper has a coupon of 14 percent that was set in the initial September 2016 auction. The bond has 12 years to maturity.
Recent auction of long-term bonds has seen rates swing between 16 percent and 18.4 percent, a substantial increase that started building from last year as the CBK took action to support the shilling and slow inflation.
The monetary authority increased its benchmark rate successively, sending the signal for higher rates across various assets including bank loans and government debt securities.
The high interest rates have resulted in lower inflation by making it costlier to take debt for investment and consumption, with banks reporting a fall in loans to customers.
The CBK action has also helped the local currency to gain ground against world majors by attracting foreign investment in government securities and slowing down imports.
The CBK, which is the government’s fiscal agent, had previously avoided issuing long-term bonds to save the Treasury from the burden of incurring high debt service costs.
It, however, returned to selling the long-term securities at the beginning of this year amid increased pressure to raise cash from the domestic market to finance the budget.
The stock of government bonds outstanding, for instance, has risen steadily to reach Sh4.72 trillion as of August 28 from Sh4.27 trillion at the end of last year, amounting to an increase of Sh458 billion.
Government securities, whose returns have traditionally beaten other fixed income instruments including bank deposits and corporate bonds, have become even more attractive in the current high-interest rate environment.
This has attracted new investors and led to existing bondholders expanding their portfolio of Treasury bills and bonds. The share of domestic debt held by “other investors” –including individuals, associations and small businesses— more than doubled to 13.5 percent at the end of last month from 6.43 percent at the end of 2022.
Besides the high returns, new investors have been attracted by the ease of investing in treasuries after the CBK introduced an online portal (DhowCSD) to facilitate the process.
