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Capital Markets

T-bonds see heaviest investors uptake in one-and-a-half years

Patrick Njoroge
Central Bank of Kenya Governor Patrick Njoroge. FILE PHOTO | NMG 

Investors offered a massive Sh105.14 billion in this month's Sh40 billion, five and 10-year Treasury bond sale, due to a heavily liquid market and short tenors that presented an attractive investment for bank sector players.

This is the heaviest bidding seen on a bond, surpassing the Sh101.97 billion investors offered in the January 2019 two- and 15-year papers.

The results of the auction done last week show the Central Bank of Kenya (CBK) took up Sh49.32 billion — less than half of the offered funds — in what reflects the fact that the Treasury has already achieved its domestic borrowing target of Sh390 billion for the fiscal year ending June 30.

Analysts at KCB Capital had said in a pre-auction note that the paper would be attractive to banks, which have recently shown a preference for shorter dated paper amid interest rate uncertainty.

"We are optimistic that CBK will raise more than the required amount to offset all the obligations falling due this month on account of the high liquidity in the market and preference by banks to lend to the government compared to extending credit to their customers," said the investment bank in its pre-auction note.

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"It is likely that CBK will have the ability to plug some of the raised cash from the domestic debt market into budgetary support as we expect CBK to raise more funds from the targeted issues due to high liquidity and great appetite for short-term papers."

The oversubscription helped the CBK comfortably cover the June bond redemptions due for a five-year paper issued in 2015, which stood at Sh30.96 billion.

Government payments as the fiscal year ends have helped push cash into circulation, while the lowering of the cash reserve ratio for banks in March left lenders holding excess liquidity.

Commercial banks' excess reserves stood at Sh32.8 billion in relation to the 4.25 per cent cash reserves requirement. The heavy liquidity in the market has also fed into the short-term Treasury bills auctions.

In last week's sale, investors offered a total of Sh45.2 billion cumulatively in the three tenors, against the government's target of Sh24 billion.

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