Capital Markets

Treasury raises Sh20 billion from bond auction

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National Treasury building. FILE PHOTO | NMG

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Summary

  • The Treasury has raised Sh20.29 from its May bond auction below its target, as the government rejected expensive bids.
  • Investors offered Sh42.59 billion for the two Treasury bonds in this month’s auction, marking a marginal over-subscription.
  • The subscription for the reopened 15-year and new 25-year was recorded at Sh11.58 billion and Sh31 billion, respectively, as preference remained on the longer-term facilities with higher returns.

The Treasury has raised Sh20.29 from its May bond auction below its target, as the government rejected expensive bids.

Investors offered Sh42.59 billion for the two Treasury bonds in this month’s auction, marking a marginal over-subscription.

The subscription for the reopened 15-year and new 25-year was recorded at Sh11.58 billion and Sh31 billion, respectively, as preference remained on the longer-term facilities with higher returns.

The Central Bank of Kenya (CBK), however, took Sh20.29 billion below its target of Sh30 billion.

‘’CBK rejected bids which they deemed aggressive, hence resulting in only Sh20.29 billion accepted,” Genghis Capital head of research Churchill Ogutu.

“Specifically for the 25-year paper, where the difference between market average bids and accepted average bids was roughly 0.08 percent yet Sh17 billion was accepted, it speaks of either concentrated aggressive bids that were ultimately rejected, or outlier bids.”

The 15-year reopened bond was first sold in 2019, hence has a tenor of 13 years, above the average maturity of 8.5 years. The bonds have coupon rates of 12.734 per cent and 13.924 percent respectively.

This comes after the government received Sh88.6 with bids for the 18-year infrastructure bond issued in April against a target of Sh60 billion.

The CBK took Sh81.9 billion on the paper with an average rate of 12.67 percent.

The interest rates have been rising since August 2020 due to fiscal financing pressure caused by falling tax revenues, and the government expected to increase its domestic borrowing to cover the expanded expenditure.