Treasury bonds raise Sh13.2bn, far from Sh40bn target

The Treasury managed to attract only Sh24.1 billion out of Sh40 billion target in a reopened bond marking one of its poorest recent market performances, with dealers expecting a repeat sale.

Even with the lower subscription, the Treasury last week accepted only Sh13.2 billion as it pushed the interest rates slightly down on the two bonds on offer.

The two 15-year bonds were reopened, having been floated in 2010 for one and 2013 for the other, meaning that they had effective tenor of seven and 10-years respectively.

“The acceptance by the Treasury of only Sh13 billion means that it is really not desperate for cash. However, we expect that it will be back in the market in a tap sale to look for the other Sh10 billion it didn’t take up but was available in the market,” said Alexander Muiruri, a fixed-income expert with Kestrel Capital.

Mr Muiruri said the higher subscription for the bond with a longer tenor was mainly by fund managers, but bankers were hesitant to take up the bond on the shorter tenor even though they normally have a preference for the same.

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The bond first issued in 2010 was accepted at an average rate of 12.676 per cent compared to the rate of 13.141 per cent at which such a bond had mostly recently been accepted. This means that the state saved 0.589 per cent in the latest auction relative to the previous one.

Further, the lower rate means that the investors got it at a higher price this time round, even though they actually wanted to get the bond at an average rate of 12.764 per cent.

The 2013 bond was accepted at 12.906 per cent, down from the 13.087 per cent at which a similar bond was taken by the Treasury in the most recent bond auction.

In this case, bidders wanted to be paid an average rate of 13.00 per cent, indicating they wanted to buy it at a lower price in order to maximise eventual returns.