Treasury floats Sh40bn ten-year market determined rate bond

The Treasury is seeking Sh40 billion through a 10-year bond whose coupon or interest rate will be determined by the market.

The Central Bank of Kenya (CBK), acting on behalf of the Treasury, said it is upon the market to determine the rate it wants to buy the bond thereby opening the way for investors to ask for higher compensation.

The sale takes five working days with the closing day set as December 11. Analysts have already expressed pessimism on the subscription, citing its length and constrained market liquidity.

“The CBK published the prospectus for the 10-year bond issue for the month of December seeking Sh40 billion for budgetary support. We do not expect enthusiastic reception driven by both the tenor which is too long for most institutional investors and the current constrained Kenya Shilling liquidity environment,” said Genghis Capital in a note to clients.

“The secondary market still remains subdued as bid/ask spreads seemed to widen, signalling uncertainty and lethargy in the market as we head into the holiday season,” said Genghis.

The latest 10-year bond to be floated in the market had to be reopened in order to meet the target amount. It had a coupon rate of 12.665 per cent on reopening in September after first floating in August. It first raised Sh19.36 billion but in the second issue it raised Sh21.24 billion – making a total of just over Sh41 billion, slightly surpassing the Sh40 billion initial offer.

Standard Investment Bank (SIB) said that each market participant could be guided by yield curve in determining the rate at which they want to bid.

"The market can be guided by the yield curve which is issued by the NSE on a weekly basis and which currently states a 10-year benchmark bond to be at 12.368 per cent. Each participant will then bid depending on their risk profile and appetite using this as a guide as well as many other factors," said SIB.