The Sh40 billion bond only attracted bids worth Sh10.1 billion, with the Central Bank of Kenya accepting Sh5.2 billion at 13.45 per cent.
Analysts at Genghis Capital do not expect a tap sale as the CBK is ahead of its borrowing target, but add that the paper may be reopened in the last quarter of the year.
The rate cap has led banks to opt overwhelmingly for government lending, with the jostling to lend to government offering CBK a chance to keep yields low.
Investors largely kept off the 25-year Treasury bond on sale this month, wary of tying funds in the long-term paper at a time rates are expected to start rising.
The Sh40 billion bond only attracted bids worth Sh10.1 billion, with the Central Bank of Kenya (CBK) accepting Sh5.2 billion at 13.45 per cent, which was largely in line with the stated coupon of 13.5 per cent.
This is despite a relatively liquid market during the sale period.
Analysts at Commercial bank of Africa (CBA) had said, in the latest weekly fixed income report, that investors were likely to stay out of the primary bond auction given the prospect of an upward yield curve adjustment should the interest rate cap be repealed.
It is this prospect that is likely to see most opt for shorter tenured securities that allow flexibility to shift to higher earning paper if rates rise.
“Longer dated papers are likely to be unpopular going forward with a greater shift to the short end of the curve,” said CBA in the analysis.
Analysts at Genghis Capital do not expect a tap sale as the CBK is ahead of its borrowing target, but add that the paper may be reopened in the last quarter of the year.
The rate cap has led banks to opt overwhelmingly for government lending, with the jostling to lend to government offering CBK a chance to keep yields low.
Should customer loan rates go up though, the government would be forced to accept more expensive money if it is to hit its domestic borrowing target of Sh272 million.
In June, however, the government has not been under pressure to take up money from the domestic debt market—having already achieved its target for the fiscal year— hence the opportunity to issue the long bond to lengthen the maturity profile of domestic debt.
The average time to maturity of domestic debt was at five years at the beginning of 2017 but has since fallen to just over four years due to increased issuance of shorter tenor Treasury bonds in a bid to keep a lid on yields.
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