Treasury targets Sh50 billion in reopened bonds

The Treasury has opted to reopen 10- and five-year bonds issued last year to avoid an aggressive market that reads desperation in recent moves to increase domestic borrowing targets.

The government will test the market appetite with the Sh50 billion sale, which is the first of the year.

“A new issue with investors putting in bids would have been more aggressive and a reopened bond will see bids around the coupon where the bond is currently trading.

“This was their way of curbing aggressive bidding because the market sees the Treasury is under pressure,” Churchill Ogutu, senior research analyst at Genghis Capital, said.

The Treasury issued a supplementary budget last year that signalled net additional borrowing of Sh85 billion.

As a result, it increased domestic borrowing targets to Sh514 billion even as the World Bank warned that 43 percent of the Sh2.87 trillion public debt owed to local investors will mature in September, increasing the pressure and refinancing cost.

More pressure has also come from the lifting of the rate cap. Banks had been avoiding long term debt in anticipation of higher yields.

In December the Treasury issued a 10-year Sh50 billion bond but only received bids worth Sh38.3 billion. It then tested the market appetite with a five-year Sh25 billion bond that was oversubscribed at Sh28 billion.

Staying away from auctions has, however, built up idle cash with Sterling Capital research head Renaldo D’Souza expecting the bond to be oversubscribed.

“I expect the aggregate bond issue to be oversubscribed on account of the favourable tenors, high market liquidity and considerably high yield on the two issues when evaluated against other investment alternatives available and risk exposure,” he said.