CBK falls short of goal to switch Treasury bill investors to bonds


CBK falls short of goal to switch Treasury bill investors to bonds

In Summary

  • The switch-bond sale which sought for Ksh.25.6 billion received bids amounting to a lesser Ksh.21.2 billion with the CBK cutting off bids worth Ksh.1.9 billion to accept a lower Ksh.19.3 billion.
  • Moreover, the CBK has faced up to higher interest demands from investors as the bond holders who were the only participants in the sale pushing the weighted average rate of accepted rates to 11.6 percent against a pre advertised 10.2 percent coupon rate.
  • The  IFB sale has resulted in a negative borrowing of Ksh.952.1 million as the CBK misses out on Ksh.20.2 billion in expected maturities of local debt from the sale.

The Central Bank of Kenya (CBK) has fallen short of its goal to switch Treasury bill (T-bill) investors to bonds in its quest to relieve pressure of the exchequer.

In its targeted switch carried out in May, the bank had sought to move investors of T-Bill number 2236/364 to a new six year amortized infrastructure bond (IFB) by calling on the investors to invest proceeds from the T-bill which matures on Monday.

Even so, the bond which sought for Ksh.25.6 billion received bids amounting to a lesser Ksh.21.2 billion with the CBK cutting off bids worth Ksh.1.9 billion to accept a lower Ksh.19.3 billion.

Moreover, the CBK has faced up to higher interest demands from investors as the bond holders who were the only participants in the sale pushing the weighted average rate of accepted rates to 11.6 percent against a pre-advertised 10.2 percent coupon rate.

In comparison, the secondary trading IFB 1/2014/12Yr bond maturing in October 2026 has a coupon rate of a flat 11 percent.

Analysts reckon the government is facing pressure to meet its local borrowing targets to the end of June even as it holds the ambition to extend the maturities of domestic debt.

Cytonn Investment senior analyst David Ngugi says CBK might be forced to only issue short termed paper as investors shy away from longer dated bond issues in recognition of existing risks.

“Shorter issues are now the easier way of raising funds at this time. Plugging the fiscal deficit is the top priority at this time and not extending maturities. An attempt to issue long dated paper would likely see lower subscription rates,” he said.

According to data from the latest National Treasury statement on actual revenues and net exchequer issues as at April 30, actual receipts from domestic borrowing stood at Ksh.476.9 billion against a target of Ksh.561 billion at the end of June leaving a balance of Ksh.84.1 billion.

Earlier in the month, the CBK reopened its five year bond/FXD1/2020/5 realizing Ksh.8.9 billion in new borrowing.

The switch in the IFB sale has resulted in a negative borrowing of Ksh.952.1 million as the CBK misses out on Ksh.20.2 billion in expected maturities of local debt from the sale.

Total domestic debt servicing costs stood at Ksh.86 billion in May.

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Story By Kepha Muiruri
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