Investors have been tipped to oversubscribe this week’s Treasury bond issue owing to high liquidity and the attraction of a short-tenor offering.
The Treasury is looking to raise Sh40 billion in the five and 10-year dual tranche budgetary support bond— the last of the fiscal year—whose sale concludes Wednesday.
Analysts at KCB Capital, AIB Capital and Genghis Capital say demand for the five-year tranche is likely to be elevated, with interest rate uncertainty still holding in the market amid the negative effects on the economy of the Covid-19 outbreak.
The market also remains liquid due to government payments as the fiscal year ends, with banks especially holding on to Sh32.8 billion in excess reserves above the 4.25 percent statutory cash reserves requirement (CRR).
“We anticipate the five-year paper to record a higher subscription than the 10-year paper based on the investors’ (banks) objectives; mainly attracted by short-term papers and constitute the majority of the government securities’ investors,”said KCB Capital analyst Mercyline Gatebi.
“This bond issue could be targeting commercial banks who are currently experiencing spurts of high liquidity due to reduced lending thus we expect moderate to high subscription on the papers.”
Uptake by the Central bank of Kenya in case of an oversubscription is likely to be limited, with the government’s fiscal agent aware that the Treasury has already achieved its domestic borrowing target of Sh390 billion for the fiscal year ending June 30.
The primary objective, therefore, according to analysts at Genghis Capital, is to raise funds to roll over the bond maturities of Sh30 billion during the month.
“With the upcoming maturity of the five-year bond issued in 2015 (amount outstanding Sh30.96 billion), we are of the view most of the bond proceeds will be to redeem the bond,” Genghis Capital head of research Churchill Ogutu said.
Genghis expects investors to demand between 11.55 and 11.6 percent on the five-year paper and between 12.45 and 12.6 percent on the 10-year.