CBK eyes Sh50bn with 20-year bond

The Central Bank of Kenya (CBK) has reopened the 20-year bond first put on sale in April as it seeks to raise Sh50 billion from investors to support public service delivery.

This month’s bond maturing in March 2039, which raised Sh9.02 billion at an average return of 12.873 percent, is being resold alongside a fresh issue that will mature in 10 years.

Interest on successful bids for the 10-year issue is likely to be lower than 12.438 percent the CBK accepted in April due to a liquid market that has resulted in yields trending lower since the beginning of the year.

Bids for 10-year bond amounted to Sh70.93 billion with the CBK only accepting close to Sh5.33 billion.

The two bond sales come on the back of a successful 15-year bond offer, which raised Sh50.59 billion of the Sh86.67 billion bids tabled by investors largely banks, fund managers and insurance companies.

“I expect the yield on papers to continue trending downwards for at least two months until we have a clear direction on rate caps especially because there’s a lot of liquidity,” said Kenneth Minjire, the head of securities at Genghis Capital.

“A lot will also depend on whether the rate cap will be adjusted come September or they will keep to the court ruling of within one year.”

The Treasury has proposed to repeal the capping of interest rates at four percentage points above the Central Bank Rate in the Finance Bill 2019, which is set to be debated and passed in September by legislators who shot down a similar move last year.

Risk-averse commercial banks suspended unsecured lending to small businesses and homes since the onset of the rate caps in September 2016, raising their stock of cash for investment in government securities.

The High Court in March declared unconstitutional section 33B of the Banking Act, which introduced rate capping but suspended the enforcement of the ruling for 12 months to give Parliament time to amend the law.