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Long tenor bonds now in force on stabilised rates

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A pedestrian walk past the National Treasury building in Nairobi on June 12, 2014. FILE PHOTO | NMG

The average period to maturity for Treasury bonds has doubled to 8.6 years in the last three years, following a move by the Treasury and the Central Bank of Kenya (CBK) to issue longer-dated bonds to reduce the refinancing risk for the government’s domestic debt.

The maturity profile for bonds had fallen to just 4.1 years in June 2018, raising concerns that the quick maturities would pose a problem for the government when raising cash either to roll over or retire the debt.

The Treasury, therefore, shifted most of its bond issuances to longer tenors, while at the same time reducing the share of debt held in form of the short-term Treasury bills in a bid to further reduce the immediate pressure on the exchequer to refinance domestic debt.

“In June 2019, it was 7.7 years, and this has been increased to 8.6 years in June 2021. The ratio of T-bills to bonds at the time was 34 percent T-bills and 66 percent bonds. This has been improved to 21 percent in T-bills and 79 bonds,” CBK governor Patrick Njoroge said on Thursday.

“That improvement is something that is really beneficial to government, and is a good indicator of the collaboration that has taken place between the CBK and the Treasury to achieve this outcome,” he added.

In the past year, the average time to maturity for all bond tranches issued by the government stands at 13 years.

The biggest beneficiaries in the push towards longer-dated bonds have been pension funds, which have raised their share of government domestic debt to 31.1 percent as of mid this month from 27 percent in June 2018.

The pension funds prefer longer-dated bonds due to the long investment horizon of retirement contributions and are therefore more active in the market when the Treasury floats longer papers.

Banks, on the other hand, prefer shorter-dated bonds, which are more aligned to their quickly shifting liquidity needs.

With the Treasury largely shunning short-dated papers in recent months, lenders have seen their share of the government’s domestic debt fall to 50.8 percent from 55 percent in June 2018.