Kenya: Treasury raises Sh27.4bn from five-year bond sale

The government raised Sh27.4 billion from the re-opened five-year bond, amounting to 91.3 percent of the Sh30 billion it was seeking in the auction.

The bond, which has 3.4 years to maturity, is part of three securities from which the State was seeking to raise Sh30 billion each for a total of Sh90 billion.

The other two re-opened bonds –a 10 year and a 20 year— are still on sale until January 18.

Investors bid Sh28.3 billion for the five-year bond, with the Central Bank of Kenya (CBK) rejecting nearly Sh1 billion.

The weighted average interest rate of the accepted bids came in at 11.23 percent as investors paid slightly above face value for the bond whose coupon is set at 11.66 percent.

The CBK, acting as the government’s fiscal agent, said the amount raised from the bond is for new borrowing.

The reopened 10-year bond has a coupon of 12.5 percent while that on the re-opened 20-year security has a fixed interest rate of 13.44 percent.

It remains to be seen whether CBK will sell the bonds at a discount or premium, raising or reducing the effective rates of returns for investors.

The 10-year bond, first sold in 2018, has seven years to maturity. The 20-year security, first sold late last year, has 19.7 years to redemption.

Government bonds have emerged as the best-performing asset class in the wake of the Covid-19 pandemic, drawing strong investor participation in the primary auctions as well as the secondary trading market.

Bond transactions at the Nairobi Securities Exchange (NSE) rose to a record Sh956 billion in the year ended December, the bourse operator said.

Retail traders in government bonds — comprising SACCOs, listed and private companies, self-help groups, educational institutions, religious institutions and individuals — raised their holdings of the securities by Sh99 billion to Sh248.4 billion during the year.

Investors have been seeking the higher guaranteed returns available from the securities as earnings from other asset classes such as equities and cash deposits remain low, hence the huge spike in bonds turnover.