July bond unlikely to excite market

Investors are unlikely to show much appetite for this month’s 20-year Treasury bond as they keep to short-term paper waiting to see the direction interest rates take, analysts say.

The Treasury is seeking Sh40 billion from the long-tenor bond, which will be on sale until July 24.

In the last three months, the Treasury has floated long-tenor bonds, which included a 25-year paper last month, and a 15-year bond in May. In April, the government issued a reopened 15-year and new 20-year bond.

“We are not optimistic that the longer-term paper will be positively absorbed by investors, hot on the heels of a sub-par performance of a similar tenor issued two months ago. The market has been salient with high demand of shorter duration papers,” said Genghis Capital in a market report.

June’s Sh40 billion bond attracted bids worth only Sh10.1 billion, despite a relatively liquid market during the sale period, indicating the lack of appetite for long-term securities in the present market.

READ: CBK floats 25-year bond, the longest tenor since 2014

In May, the 15-year paper attracted Sh20 billion bids out of a target of Sh40 billion, while April’s double issue got bids worth Sh32.8 billion, with the 20-year tranche accounting for only Sh9.9 billion.

Uncertainty over interest rates is emanating from the possibility of a review of the rate cap, which analysts say would see the government forced to pay more for domestic debt in order to compete favourably with the resultant rise in private sector loan rates.

This month’s sale is, however, likely to get a boost as liquidity eases back into the banking sector.

In the last two weeks, interbank rate rose as banks raced to raise cash for quarterly tax remittances that were due at the end of the fiscal year, touching a high of 6.68 per cent on June 27. At the close of last week though, the rate eased to 4.86 per cent, indicating rising liquidity.