Capital Markets

Investors tipped to bid lower for Sh40bn Treasury bond

Traders on the NSE trading floor.
Traders on the NSE trading floor. CBK has found it easier to reject expensive bids due to the high maturities. PHOTO | DIANA NGILA | NMG 

Investors are likely to bid lower interest rates on the Sh40 billion 15-year Treasury bond currently on sale compared to recent offers of a similar tenor, analysts at three investment banks have projected.

The bond is the fourth 15-year offer being sold by the government in 2019 — similar tenors were floated in January, February and May — with yields falling in successive sales.

High liquidity in the market is also likely to be a factor in the bidding for the first bond issue of the fiscal year, with domestic maturities hitting Sh154 billion this month.

“In consideration of most recent similar-dated tenors, investor sentiment and current market yields on the NSE, we predict investor bids for the July bond at around 12.45 to 12.55 percent,” said Sterling Capital in a fixed-income note.

Another investment bank, AIB Capital, sees successful bids coming in at between 12.25 and 12.4 percent in the offer.


In a note Kingdom Securities expect aggressive investors to ask for 12.3 to 12.45 percent, while conservative bidders are likely to be demanding 12 to 12.2 percent.

In the January 2019 15-year bond, the average rate of accepted bids stood at 12.86 percent but this fell to 12.77 percent when the bond was floated again in a quick reopening in February.

In May, the Treasury sold another 15-year bond, on which the accepted bids yield stood at 12.73 percent.

The general fall in rates has been common across the yield curve, although it has been more pronounced on the shorter-term debt.

CBK has found it easier to reject expensive bids due to the high maturities which have raised competition among investors to lend to government, with a number of recent auctions raising more than double the offered amounts.

The need to roll over maturities, however, means that CBK is likely to take up at least Sh40 billion in the July bond in case of an oversubscription, as was the case in last week’s Treasury bills auction where maturities of Sh46 billion meant that the regulator accepted all the Sh44 billion offered by investors.

Treasury secretary Henry Rotich plans to raise a net of Sh283.5 billion from domestic investors in form of bills and bonds to help plug a Sh607.8 billion hole in this year’s Sh3.1 trillion budget.