Short-term benchmark bonds are expected to take the centre stage from this month at the expense of long-tenor securities as government ups its current financial year borrowing.
Analysts at investment bank Genghis Capital in a quarter-three macro-economic and fixed income report say the yield curve exhibits relative flatness on the long-end and has not offered attractive opportunities commensurate with the longer maturities.
“In addition, the successive issuance of longer-term papers has set in investor fatigue on that segment of the yield curve. We anticipate short-end benchmark bonds will be prominent from August as the government ups the ante on its financial year 2018/19 borrowing campaign. Overall, we see the yield curve remain relatively flat on the long-end,” said the analysts.
The last three primary bonds since May have been characterised with long-term benchmark issuance which have not been received positively in the market.
Last month’s 20-year bond only managed to attract Sh13.86 billion from investors against an offer of Sh40 billion.
The June 25-year tenor attracted bids worth Sh10.13 billion against Sh40 billion which was on offer.
This was despite a relatively liquid market witnessed during the auction period, and analysts attributed this to lack of appetite for long-term securities in the market.
In May, the 15-year Treasury bond managed to raise Sh20.21 billion from investors.
It also had a target of Sh40 billion.
Analysts said the underlying reason for the Central Bank of Kenya (CBK) strategy to issue longer-term bonds was that the government borrowing was ahead of its schedule since end of quarter one coupled by the prudence to manage debt maturity profile.