Capital Markets

Treasury seeks Sh31.5 billion in top-up bond sale

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

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Summary

  • Three reopened bonds –a five-year, 15-year and 25-year paper— sought to raise a total of Sh50 billion but attracted bids of Sh40.9 billion.
  • The Central Bank of Kenya (CBK) took up Sh18.45 billion, rejecting bids worth Sh22.5 billion largely on account of investors seeking high interest rates.
  • Investment banks had anticipated that the bond would do well in the market, but had not accounted for the CBK’s determination to avoid bids that were priced above the yield curve.

The National Treasury has opened a tap sale for its undersubscribed March bond, targeting to raise an additional Sh31.5 billion from the paper.

Three reopened bonds –a five-year, 15-year and 25-year paper— sought to raise a total of Sh50 billion but attracted bids of Sh40.9 billion.

The Central Bank of Kenya (CBK) took up Sh18.45 billion, rejecting bids worth Sh22.5 billion largely on account of investors seeking high interest rates.

Fiscal analysts had anticipated a return to the market with a tap sale in order to fulfil the targeted amount, which will now be sold at the accepted rates from the primary sale which closed last week.

Investment banks had anticipated that the bond would do well in the market, but had not accounted for the CBK’s determination to avoid bids that were priced above the yield curve (prevailing market rates).

The tap sale will run until Friday but can be closed earlier if the government hits its targeted amount.

“The subscription of the fixed coupon bonds was below our expectation. This could be partly attributed to the February infrastructure bond issue sapping liquidity from the market and investors’ concern over rising inflation and the weakening shilling,” said city-based investment bank AIB-AXYS Africa in a fixed income note.

Although it is issuing a tap sale, the government is not under much pressure to borrow heavily from the domestic market in the remainder of the fiscal year, having frontloaded on the debt in previous months when ample liquidity and heavy demand for securities allowed it to access funds at friendly rates.

By the end of last week, analysis by NCBA Capital shows the Treasury had taken up a net of Sh390.1 billion from the market, equivalent to 63 percent of its domestic borrowing target of Sh616.8 billion.

There are also no Treasury bond maturities until the end of April, meaning that there is no pressure on CBK to take up funds for refinancing purposes.

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