Market News

State floats Sh50bn bond as investors seek higher rates

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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • The State has been issuing longer dated bonds in recent months as part of an effort to lengthen the maturity profile of domestic debt.
  • The sale, however comes at a time when investors are tipped to demand higher rates on government paper, given the large deficit for the fiscal year combined with below-par revenue performance.

The Treasury has floated a Sh50 billion bond comprising medium and long-term tranches, with investors likely to demand higher rates in light of the government’s worsening fiscal position.

The bond prospectus published by the Central Bank of Kenya (CBK)—the government’s fiscal agent— says that the issue will see reopenings of a 10-year bond first sold in 2019 and a 20-year paper whose first sale was in 2018, effectively giving them eight years and 17.4 years to maturity, respectively.

It will be on sale until March 9.

The State has been issuing longer dated bonds in recent months as part of an effort to lengthen the maturity profile of domestic debt.

The sale, however comes at a time when investors are tipped to demand higher rates on government paper, given the large deficit for the fiscal year combined with below-par revenue performance.

“The combination of a fragile fiscal outlook, rising inflation and rising external yields may encourage fairly aggressive bids for government papers. However, ample liquidity and sustained appetite for the sovereign risk should sustain the moderate move upwards,” said NCBA economists in a fixed income note this week.

The CBK will also be keeping an eye on the maturities due in coming months when gauging the amount of money to take up from bond issues.

This month, the only bond maturities on the books of the government comprise a partial redemption of a 12-year infrastructure bond issued in 2015, giving the government some room to raise the net borrowing from the domestic market as it works towards the full year target of Sh572 billion.

There are, however heavy maturities worth Sh86.5 billion of the shorter term Treasury bills, which the State will hope to roll over through the weekly auctions of these securities.

Last month’s bond sale that sought to raise Sh50 billion raised Sh43 billion, which was inclusive of the proceeds of a tap sale. Analysts at Sterling Capital attributed the underperformance of the bondon the saturation of the market.