Markets & Finance

CBK raises Sh24bn from December bond auctions

Patrick Njoroge

Central Bank of Kenya (CBK) Governor Patrick Njoroge. PHOTO | DIANA NGILA | NMG

The reopened 20-year and 25-year bonds raised Sh24.3 billion, with investors getting a little premium on the interest rates set in the securities’ initial auctions.

This marks a 60.8 per cent success rate against the target of Sh40 billion.

The Central Bank of Kenya (CBK) received bids of Sh30.5 billion and rejected a significant amount of the offers to accept the Sh24.3 billion.

Results of the auction show that investors got an effective average interest rate of 13.83 per cent on the 20-year paper which has 5.6 years to maturity.

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This is higher than the fixed or coupon rate of 13.75, which was set in the bond’s first sale. Investors can get different returns on the same bond, with adjustments coming from a few key variables.

These are the application of a discount or premium on the principal to be paid by an investor besides the time remaining to the next interest payment. Interest on government bonds is paid twice per year.

Debt investors got an effective average interest rate of 14.43 per cent on the 25-year paper which has 24.9 years to maturity.

The security was first sold in October when its coupon rate stood at 14.18 per cent.

The 20-year paper, deemed more attractive due to its relatively shorter term to maturity, received more bids of Sh17.3 billion. The 25-year security got bids of Sh13.2 billion.

Interest in government bonds and T-bills has been rising in recent months, reflecting the State’s funding pressures and investors’ demand for adequate returns amid high inflation and the weakening of the Kenya shilling.

CBK recently converted Sh49.1 billion worth of T-bills and a two-year bond that were to mature early next month into a new six-year security as part of a debt refinancing strategy.

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The transaction, known as a switch, will see net interest income for those who participated in the conversion rally by up to 72 per cent.

The new six-year infrastructure bond, which is tax-exempt, came with a fixed interest rate of 13.215 per cent. The CBK had targeted to switch securities worth a total of Sh87.8 billion.

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