Kenya: National Treasury seeks Sh60 billion from May bond sale

The National Treasury is in the market seeking to raise a total of Sh60 billion from two bonds this month.

The Central Bank of Kenya (CBK), the government’s fiscal agent, is selling a new 10-year paper and a re-opened 25-year security that was first auctioned in 2021.

The interest rate for the 10-year bond will be determined by the market while the longer-dated paper, which has 24.1 years to maturity, has a coupon of 13.924%.

The securities are on sale until May 10.

The CBK raised Sh60 billion from two April bonds, falling short of its Sh70 billion target. Part of the underperformance is on account of the rejection of more expensive bids.

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.

Stocks listed on the Nairobi Securities Exchange have been trading down after most blue-chip firms closed their books for dividends and the fallout from Russia’s invasion of Ukraine escalates.

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

The CBK has fallen short of its target where it declines bids mainly on account of investors seeking higher interest rates than it is willing to pay.

Institutional investors led by banks, pension funds, and insurers usually state the interest they want to be paid, while most small investors typically settle for the market average.

The market average is largely influenced by the bids from the big investors who dominated the treasuries market.

The government plans to make net new domestic borrowing of Sh581.7 billion in the next fiscal year to fund the budget, with most of the bonds expected to be long-term.

The National Treasury is expected to continue the trend of issuing more long-term bonds to achieve its goal of lengthening the maturity profile of domestic debt.

The strategy is aimed at reducing refinancing risk which arises when a large amount of debt is due to be paid within a short period of time.