Capital Markets

Treasury reopens long-term bonds in Sh50 billion sale

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Central Bank of Kenya (CBK). FILE PHOTO | NMG

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Summary

  • The government is targeting to raise Sh50 billion from the two-tranche bond issue, intended for general budgetary allocation.
  • The bond will be on sale until October 13, with CBK having opened the offer on September 28.
  • The CBK said that the 20-year paper will carry a coupon of 10 percent, while the 25-year has a coupon of 13.4 percent, which is on the higher end of the yield curve.

The government has opted for long-term bonds in the October sale, looking to take advantage of investor clamour for higher yields.

The Central Bank of Kenya (CBK), in its role as the government's fiscal agent, said in the October bond prospectus that it is reopening 20-year and 25-year bonds first sold in 2011 and 2018 respectively, which have got 10.6 and 22.7 years to maturity.

The government is targeting to raise Sh50 billion from the two-tranche bond issue, intended for general budgetary allocation.

The bond will be on sale until October 13, with CBK having opened the offer on September 28.

The CBK said that the 20-year paper will carry a coupon of 10 percent, while the 25-year has a coupon of 13.4 percent, which is on the higher end of the yield curve.

The move to issue the longer dated papers is also in continuation of a recent trend which is meant to lengthen the maturity profile of domestic debt, which had come down in recent years due to heavy uptake of short term Treasury bills.

This sale, however, comes at a time when liquidity in the market is tightening. CBK said in last week’s market bulletin that this was mainly as a result of tax remittances, which more than offset government payments.

The reduced liquidity has reflected in the rise in the interbank rate from 2.33 percent two weeks ago to 3.45 percent currently.

It also reflected in last week’s Treasury bills auction, which returned the lowest amount in bids this year—a 10-month low— of Sh7.1 billion against the offered Sh24 billion across the three tenors.

Last month’s three-tranche, Sh50 billion sale attracted bids worth Sh81.7 billion, with the government taking up Sh64.2 billion.

The Sh70 billion, 11-year infrastructure bond sold in August was also heavily oversubscribed, attracting bids worth Sh101.5 billion with an uptake of Sh78.6 billion.