December bond raises 38 billion shillings backed by liquid market

By CHARLES MWANIKI
More from this author

Abstract

• The government had asked for 40 billion shillings in the two-tranche bond sale, with investors offering 41.2 billion shillings in what reflected a liquid money market backed by government payments to its agencies, suppliers and departments.
• Of the accepted bids of 37.8 billion shillings, the highest amount of 20.3 billion shillings came from the 10-year reopened paper first sold in 2019, while the 20-year reopening in 2018 was 17.5 billion shillings.

The Treasury raised 37.8 billion shillings in the December bond issue, defying subscription expectations due to the sale taking place in the run-up to the holiday season.

The government had asked for 40 billion shillings in the two-tranche bond sale, with investors offering 41.2 billion shillings in what reflected a liquid money market backed by government payments to its agencies, suppliers and departments.

Of the accepted bids of 37.8 billion shillings, the highest amount of 20.3 billion shillings came from the 10-year reopened paper first sold in 2019, while the 20-year reopening in 2018 was 17.5 billion shillings.

The funds should be allocated for general budget support.

“Contrary to our expectations… the bonds were oversubscribed, which is due to the low target amount,” analysts at urban investment bank Sterling Capital said.

In previous bond issues since July, the Treasury was targeting between 50 and 70 billion shillings and received large oversubscriptions.

It is, however, ahead of its domestic borrowing target of 616.8 billion shillings for the current fiscal year, having raised a net amount of 342 billion shillings, including this month’s bond takings.

The reduced pressure to borrow has allowed the Central Bank of Kenya (CBK) to reject expensive offers when selling bonds. Investors demanded an average of 12.6% for the 2019 paper and 13.4% for the 2018 reopening, with the Treasury standing at 12.28% and 13.2%.

The balanced performance between the two big names also supports recent efforts to lengthen the maturity profile of domestic debt by issuing long-term bonds.

Speaking following last week’s Monetary Policy Committee meeting, CBK Governor Patrick Njoroge said the average bond maturity has lengthened to nine years from seven years. 5 years in June 2019.

The Treasury also reduced the share of domestic debt held in the form of short-term Treasury bills to 17.9%, from 34% in June 2019, further mitigating the risk of refinancing domestic public debt.

[email protected]