The Treasury has raised Sh38.6 billion from July’s bond auction, falling slightly shy of its Sh40 billion target.
The missed target has nevertheless come against the auction’s oversubscription with investors bidding Sh51.76 billion for the pair of bonds offered in the auction, representing a 129.41 percent performance rate.
The lower acceptance points to the rejection of Sh13.1 billion worth of applications that the Central Bank of Kenya (CBK) deemed too expensive.
Investor bids were concentrated on the new five-year bond at 29.09 billion in contrast to bids of Sh22.66 billion on the re-opened 10-year paper which had a term of 3.2 years to maturity at auction.
The push for higher risk-adjusted returns by investors was evident in the auction with the weighted average rate of accepted bids for the re-opened paper standing at 16.328 percent against a 15.039 percent coupon rate set in the first sale.
The new five-year paper meanwhile set a coupon rate of 16.844 percent to mirror the steady rise in yields on government securities sold so far this year. Investors have been seeking higher interest rates on the fixed-income securities in light of high inflation and weakening shilling, factors which erode the purchasing power of debt investors.
Proceeds from the bond auction have been classified as new borrowing with no redemptions covered by the auction.
The July bond sale marks the start of the domestic borrowing programme by the government for this financial year.
The Treasury is expected to borrow Sh586.5 billion (net domestic financing) in the fiscal year to June 2024.
Analysts had widely expected pressure on yields to show at the auction given the prevailing economic environment.
“We believe the yield curve will continue facing upward pressure attributable to the evolving macro economical risks and rising yields in the primary markets. We foresee aggressive bidding and high participation levels in the July auction,” analysts at Genghis Capital stated.
