The March bond was undersubscribed for the second time as the Central Bank of Kenya (CBK) remained keen on rejecting expensive bids.
The auction, which was targeting to raise an additional Sh31.5 billion from the reopened five-year, 15-year and 25-year, received bids worth Sh24.89 billion.
The CBK, acting as the government’s fiscal agent, accepted Sh23.86 billion or 95.8 percent of the bids.
The bonds sought to raise Sh50 billion in the first auction but CBK took only Sh18.45 billion out of the Sh40.9 billion worth of bids received.
The rejection of the bids amounting to Sh18.45 billion came as investors asked for higher interest rates than CBK was willing to pay.
The underperformance of the first auction saw the CBK run the tap sale to raise the balance but the second sale also fell short of the target.
In the tap sale, the 15-year paper was the most popular bond and attracted bids worth Sh15.56 billion, out of which only Sh14.65 billion was accepted by CBK. The average interest rate for the bond stood at 13.73 percent.
The five-year paper raised bids worth Sh3.93 billion at an average rate of 11.997 percent, with CBK taking up Sh3.83 billion.
Bids on the 25-year was Sh5.39 billion, at 13.97 percent on average, where Sh5.37 billion was accepted.
Aggressive bids by some of the fixed-income investors has been linked to expectations of higher inflation owing to the weakening of the shilling, rising commodity prices and supply challenges in the wake of Russia’s invasion of Ukraine.
Analysts say investors seeking higher rates are likely to go for tax-free infrastructure bonds (IFBs) in the secondary market.
“We expect activity in the secondary market to accelerate, in the coming weeks, mainly concentrated in IFBs as investors continue searching for higher returns,” stockbroker AIB-AXYS said in a market brief.
“Reduced redemptions and early budget reading is likely to lead to the government slowing down on issues in the primary market.”
