Capital Markets

October bond attracts few takers on tight liquidity

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National Treasury building. FILE PHOTO | NMG

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Summary

  • The Treasury has recorded an under subscription in its monthly bond sale for the first time since March.
  • Investors bid a total of Sh55.47 billion on the three-tranche October bond that sought Sh60 billion, bucking the recent trend of heavy oversubscriptions on the primary bond sales.
  • The Central Bank of Kenya took up Sh52.05 billion, leaving open the possibility of a tap sale in the coming days to close the gap on the targeted amount.

The Treasury has recorded an under subscription in its monthly bond sale for the first time since March as liquidity in the money market tightened on the back of a Central Bank of Kenya (CBK) mop up.

Investors bid a total of Sh55.47 billion on the three-tranche October bond that sought Sh60 billion, bucking the recent trend of heavy oversubscriptions on the primary bond sales.

The Central Bank of Kenya took up Sh52.05 billion, leaving open the possibility of a tap sale in the coming days to close the gap on the targeted amount.

Analysts at AIB-AXYS Africa had projected the bond to be undersubscribed, citing tight liquidity in the market that has seen the interbank rate climb to 6.53 percent from 3.33 percent a month ago.

“In the past weeks, liquidity in the money markets has shrunk on the back of a heavily oversubscribed infrastructure bond issue (in September), as well as, aggressive open market operations by CBK…due to the tight liquidity in the money market, the bonds are likely to be undersubscribed,” said the investment bank in a note ahead of the bond’s auction.

The government reopened three past bonds for the October issue. They are two 15-year papers first sold in 2013 and 2019 and which have 6.4 years and 12.9 years to maturity respectively, and a 25-year bond that was first sold in July this year, which now has 24.7 years remaining to maturity.

The 25-year paper was the most preferred by investors—largely by pension funds—attracting bids worth Sh28.7 billion at an average rate of 13.9 percent.

The 15-year paper floated in 2013 got bids worth Sh23.4 billion and is paying a rate of 11.3 percent, while the medium term 2019 reopening got bids worth only Sh3.4 billion with its average rate settling at 12.3 percent.

Although the government was unable to raise its full target of Sh60 billion, recent oversubscriptions including the September infrastructure bond which raised Sh106.8 billion mean that it is still ahead of the prorated full-year domestic borrowing target.