Capital Markets

Treasury raises Sh60bn from April bond sales

treasury

The National Treasury building in Nairobi. PHOTO | SALATON NJAU | NMG

Summary

  • It is the second April bond after the three-year paper which also underperformed its target of Sh40 billion after netting Sh33.1 billion.
  • The Central Bank of Kenya, the government’s fiscal agent, received bids of Sh32.5 billion on the 15-year security and rejected Sh4.9 billion of the amounts offered.
  • The long-term bond was sold at an average fixed interest rate of 13.94 percent and which was set by the market.

The government has raised Sh27.6 billion from the sale of the fifteen-year bond which had targeted to raise Sh30 billion.

It is the second April bond after the three-year paper which also underperformed its target of Sh40 billion after netting Sh33.1 billion.

The Central Bank of Kenya, the government’s fiscal agent, received bids of Sh32.5 billion on the 15-year security and rejected Sh4.9 billion of the amounts offered.

The long-term bond was sold at an average fixed interest rate of 13.94 percent and which was set by the market.

This makes it the most lucrative among the 15-year bonds outstanding in terms of the interest rate set in the primary market.

It is followed by security maturing on June 6 and which has a 13.5 percent interest rate that was fixed when it was first sold on June 25, 2007.

Major investors in treasuries have been pushing for higher rates amid rising inflation and the weakening of the shilling against major world currencies.

The government was aiming at raising a total of Sh70 billion from the two April bonds but only accepted bids totaling Sh60.7 billion.

The CBK has fallen short of its target where it declines bids mainly on account of investors seeking higher interest rates than it is willing to pay.

Institutional investors led by banks, pension funds, and insurers usually state the interest they want to be paid, while most small investors typically settle for the market average.

The market average is largely influenced by the bids from the big investors who dominated the treasuries market.

The government plans to make net new domestic borrowing of Sh581.7 billion in the next fiscal year to fund the budget, with most of the bonds expected to be long-term.

The National Treasury is expected to continue the trend of issuing more long-term bonds to achieve its goal of lengthening the maturity profile of domestic debt.

The strategy is aimed at reducing refinancing risk which arises when a large amount of debt is due to be paid within a short period of time.

Beneficiaries of long-term bond auctions are pension funds and life insurers whose investment horizon runs into decades.

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