Treasury snubs Sh62 billion in bond auction

The Treasury received bids worth over Sh100 billion after floating two- and 15-year bonds but only took up Sh38.49 billion as it went for lower rates.

Market liquidity enabled a massive oversubscription even with the Treasury, through its fiscal agent Central Bank of Kenya, offering only Sh40 billion through the two issues. Some Sh62 billion was rejected.

The weighted average rate of accepted bids for the two-year paper stood at 10.701 percent against the market demand for 10.905 per cent. The only listed two-year paper was issued on September 25, 2017 and had a coupon of 11.62 percent and a yield of 9.47 percent.

For the 15-year paper, the weighted average rate for accepted bids was 12.857 per cent, slightly higher than the 12.746 per cent achieved in the last auction of an issue of similar tenor. The weighted rate for all the bids by the market stood at 12.971 percent, showing the CBK chose the cheaper bids.

The two-year paper attracted bids worth Sh76.9 billion while the 15-year bond offer had subscription of Sh25.07 billion.

“The market was offered a good mix of short- and long-term bonds. But then the market has a preference for short-term bonds so the higher subscription for the two-year bond offer,” said Renaldo D’Souza, head of research at Sterling Capital.

He said the market was less keen on the long-term issues because the rates offered were lower at about 12 per cent despite the risk being long-term.

Genghis Capital said the rates were within market expectations but the total amount of subscriptions was unexpected.

“The two-year and 15-year results came within market expectations with the average for the two-year falling at 10.701 per cent while that of the 15-year came in at 12.857 per cent.

However, the subscriptions caught the market unawares with total subscriptions hitting Sh101 billion,” said Genghis.