Capital Markets

Treasury back in the market with Sh50 billion bond

central bank of kenya
The CBK said the coupon rates on the two tranches will be market-determined. FILE PHOTO | NMG 

The Treasury has returned to the market with a new Sh50 billion bond issue, hot on the heels of an undersubscribed infrastructure bond whose sale closed last week.

The bond prospectus posted by the Central Bank of Kenya says that the coupon rates on the two tranches of 10 and 20 years will be market-determined, although the regulator is likely to keep with its policy of rejecting most bids falling north of the yield curve.

The last 10-year bond, which was issued in February, had an accepted average rate of 12.44 percent, while the 20-year bond sold in September 2018 had a rate of 12.93 percent.

Last week, the Treasury concluded the sale of a Sh50 billion 25-year infrastructure bond.

The offer had a 58 percent performance rate with bids worth Sh29.4 billion, of which the CBK took up only Sh16.3 billion.

The new bond, which will be on sale until April 9, thus offers the government a chance to quickly mop up the rejected funds and maturities coming through, with the shorter tenor of the 10-year tranche likely to attract high interest going by past trends.

Maturing debt

Market liquidity is also rising, helped by a mix of maturing debt and government payments to its departments and agencies, which should ideally help the performance of the bond.

“The money market was liquid during the week, partly due to government payments, which offset tax remittances by banks,” said Apex Africa Investment Bank in their weekly market report.

The interbank rate, a good indicator of market liquidity, fell to 2.3 percent last Friday compared to 3.5 percent the previous week.

The Treasury has been issuing two tenor bonds in recent months — other than the infrastructure bond issued earlier this month — giving investors seeking short-term bonds an opportunity to invest.

While pension funds have continued to invest in the long-term papers, other investors such as banks have been looking for short to medium-term paper amid uncertainty over interest rate direction.