Genghis Capital is tipping the Treasury to turn to more short-term bonds to bridge domestic borrowing needs, having fallen behind the pro-rated target by Sh80.65 billion.
The investment bank says despite the tenor of domestic debt having reduced to about 4.5 years from a high of 8.4 years in 2011, the Treasury may have to diverge from its long-term bond issuance to spur its domestic borrowing.
Churchill Ogutu, a senior research analyst at Genghis, said net domestic borrowing closed the first half of the 2018/2019 fiscal year at Sh58.85 billion against a target of Sh139.5 billion mainly derailed by the longer-tenor bond issues as well as significant T-bill redemptions during the period.
“Successive issuance of long term debt in the market as outlined in the medium-term debt management strategy was to cover against refinancing risk. But there was no much uptake of it because there was no much attractiveness with interest rate cap in place,” said Mr Ogutu. With the rate cap in place, he argued that normalising the yield curve on long term and short term has not been easy and more short-term debt will help the Treasury meet the borrowing target.
“Our view is that there should be a blend between long end and short-end bonds to attract institutional investors in the market. The uptake of two-year bond in January speaks to a pent-up demand that had been starved for a number of months,” added Mr Ogutu.
The Treasury received bids worth over Sh100 billion after floating two- and 15-year bonds. The two-year paper attracted bids worth Sh76.9 billion while the 15-year bond offer had subscription of Sh25.07 billion.