Investors warm up to long term bonds

February’s bond issuance is expected to raise between Sh40 billion and Sh60 billion on re-opened papers with tenures of between 10 and 15 years.

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Investors have warmed up to long-term bond issuances as interest rates fall, allowing the Central Bank of Kenya (CBK) to veer off the set annual borrowing plan.

The acceptance for the long-dated government securities in the January auction, has increased the scope for the apex bond to continue issuing the papers, extending the average time to maturity for Treasuries.

January’s re-opened bonds whose tenure ranged from 8.3 years to 22.8 years, registered a performance rate of 196.6 percent with bids totaling Sh58.9 billion against a target of Sh30 billion.

Bids on the re-opened 25-year bond stood at Sh28.4 billion, registering a performance of 94.7 percent, closely tracking interest in the re-opened 15-year paper which had bids of Sh30.5 billion.

The re-opened 25-year paper was outside the 2024/25 annual borrowing plan which priced in the issuance of bonds with tenures of 10 to 15 years in January 2025.

Analysts at Sterling Capital highlighted the January bond auction, as being outside borrowing plan while noting investor interests in long-term papers as interest rates drop.

“... the bonds fall outside expectations in the government’s annual borrowing plan, which highlighted that the exchequer would seek Sh40 billion to Sh60 billion in January 2025, through re-openings that had tenors of 10 to 15 years,” the analysts said.

“With interest rates on a downward trajectory, investors would prefer to invest in instruments with a longer maturity given than these bonds are likely to fetch a premium in the secondary market as rates decline further.”

The CBK has avoided issuing long-term bonds until now, as it avoids high interest payouts to investors over time in a high-interest rate environment.

The recent drop-in interest rates on government securities, primarily anchored on the lowering of the benchmark interest rate, has allowed the CBK to once again begin issuing long-term bonds.

February’s bond issuance is expected to raise between Sh40 billion and Sh60 billion on re-opened papers with tenures of between 10 and 15 years.

The annual borrowing plan is not cast in stone with the exchequer stating that the issuance plan may be reviewed during the year in consultation with market participants and stakeholders.

The National Treasury has already shelved a plan to issue switch bonds worth Sh204 billion to holders of securities maturing in April and May this year. The government expects to raise Sh413.1 billion in net domestic borrowing for the fiscal year running to June 30, 2025.

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