Kenya: December bond raises Sh38bn backed by liquid market

The Treasury has raised Sh37.8 billion in the December bond issue, defying expectations of an under-subscription due to the sale taking place close to the festive season.

The government had sought Sh40 billion in the two-tranche bond sale, with investors offering Sh41.2 billion in what reflected a liquid money market supported by government payments to its agencies, suppliers and departments.

Out of the accepted bids amounting to Sh37.8 billion, the higher amount of Sh20.3 billion came from the reopened 10-year paper first sold in 2019, while the 20-year, 2018 reopening accounted for Sh17.5 billion.

The funds are to be deployed into general budgetary support.

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

In previous bond issues since July, the Treasury had been targeting between Sh50 billion-Sh70 billion and has been receiving heavy oversubscriptions.

It is, however, ahead of its domestic borrowing target of Sh616.8 billion for the current fiscal year, having raised a net of Sh342 billion including this month’s bond takings.

The reduced pressure to borrow allowed the Central Bank of Kenya (CBK) to reject expensive bids during the bond sale. Investors demanded an average of 12.6 percent for the 2019 paper and 13.4 percent for the 2018 reopening, with the Treasury settling at 12.28 percent and 13.2 percent.

The balanced performance between the two tenors also backs the recent efforts to lengthen the maturity profile of domestic debt by issuing long-dated bonds.

Speaking following last week’s Monetary Policy Committee meeting, CBK governor Patrick Njoroge said the average time to maturity for bonds has lengthened to nine years from 7.5 years in June 2019.

The Treasury has also cut the share of domestic debt held in form of short-term Treasury bills to 17.9 percent from 34 percent in June 2019, further easing the refinancing risk for domestic public debt.