Kenya: Central bank seeks to raise Sh10 billion from bond tap sale

The Central Bank of Kenya is seeking Sh10 billion from the reopening of the two May bonds which had underperformed in the first auction that closed last week.

The 10 and 25-year papers had raised Sh31.7 billion against the target of Sh60 billion.

The new target by the government’s fiscal agent in the tap sale represents less than half of the shortfall in the initial sale.

The 10-year bond has an average interest rate of 13.49% while the rate on the 25-year security came in at 13.97%.

“Central Bank of Kenya is pleased to offer eligible investors an opportunity to participate in a tap sale of the above fixed coupon Treasury bonds whose details are as in the prospectus issued value date 16/05/2022. The tap sale will be offered on a first-come-first-served basis,” the monetary authority said in a notice.

The sale will close upon attainment of the Sh10 billion target or on May 20, whichever comes first.

Part of the underperformance in last week’s auction was on account of the rejection of more expensive bids.

The 10-year tranche received bids worth Sh32.89 billion with CBK accepting Sh28.6 billion and rejecting Sh4.2 billion.

The longer date paper attracted Sh10.22 billion from investors with the fiscal agent accepting only Sh3.06 billion of the amount. The ten-year security was first sold last week while the longer-dated paper was sold in 2021 with 10 years and 24.1 years to maturity respectively.

Investors have shied from the longer-term bonds, a signal that most of them feel they are not getting enough compensation for the extra years they stand to hold the paper compared to the 10-year bond.

Major investors in treasuries have been pushing for higher rates amid rising inflation and the weakening of the shilling against major world currencies.

The new bond auctions come at a time when the stock market is registering a sharp decline, a move that could see the fixed income securities benefit from investors fleeing to lock in guaranteed returns.