Capital Markets

Investors snap up short-term bonds after festive break

cbk

The Central Bank of Kenya head office. file photo | nmg

charlesmwaniki_img

Summary

  • Investors offered the government a total of Sh61.15 billion against the target of Sh25 billion, with the Central Bank of Kenya (CBK) taking up Sh55.86 billion.
  • The offer’s performance was also helped by the fact that it was the first one following the Christmas and New Year holidays break, meaning many investors who had been away from the market were looking to resume working their portfolios.
  • The paper was being sold alongside a 16-year infrastructure bond, whose sale ends on January 19.

Pent-up demand for short- term bonds showed up in the market last week, leading to heavy oversubscription of the two-year paper whose sale concluded on Tuesday.

Investors offered the government a total of Sh61.15 billion against the target of Sh25 billion, with the Central Bank of Kenya (CBK) taking up Sh55.86 billion.

The offer’s performance was also helped by the fact that it was the first one following the Christmas and New Year holidays break, meaning many investors who had been away from the market were looking to resume working their portfolios.

The paper was being sold alongside a 16-year infrastructure bond, whose sale ends on January 19.

“We attribute the oversubscription to the bond’s short tenor, as well as high demand from banks looking for short-term liquidity investments,” said Sterling Capital in a note on the auction.

The high acceptance rate of the bids was in part informed by the government’s need to borrow significantly this month to cover a large slate of maturities in domestic debt, while at the same time closing the target for new borrowing.

Domestic debt service in January is estimated at Sh174.9 billion, comprising Sh128.8 billion in maturing Treasury bills and Sh31.12 billion in bonds, and Sh15 billion in interest payments.

“The sharp increase in domestic debt service this month implies that a big proportion of funds raised particularly in T-Bill auctions will be directed towards debt redemptions rather than new borrowing,” added Sterling.

“In addition, the CBK is likely to be more accommodative of higher investor bids and is likely to increase its acceptance levels as was the case with this month’s two-year bond auction.”

In the T-bill sale last week, investors bid a total of Sh15.77 billion against the target of Sh24 billion, with the performance likely affected by the concurrent bond sale.

The CBK took up Sh13.8 billion, which against maturities of Sh55.3 billion meant that there was a net repayment of Sh39.5 billion on the short term securities.

By the end of last month, the Treasury was behind target in net domestic borrowing in the current fiscal year, having raised Sh270 billion out of the revised target of Sh600 billion.