October bonds in rare under-subscription


October bonds in rare under-subscription

In Summary

  • Investor bids on the three bonds on offer tallied to Ksh.55.5 billion, Ksh.4.5 billion less than the set Ksh.60 billion target.
  • This is the first primary bond issuance to miss its mark by investor subscriptions in the new 2021/2022 fiscal year.
  • Bids in the last five available Treasury bonds (T-bonds) have totaled to Ksh.466.8 billion against the offers’ target of Ksh.305 billion to show a Ksh.161.8 billion surplus.

October’s Treasury bonds saw a rare under-subscription with investors sinking in bids shy of the target.

Investor bids on the three bonds on offer tallied to Ksh.55.5 billion, Ksh.4.5 billion less than the set Ksh.60 billion target.

As such, the Central Bank of Kenya (CBK) could only accept even less from the bids at Ksh.52 billion following the close of the bonds offer window this week.

This is the first primary bond issuance to miss its mark by investor subscriptions in the new 2021/2022 fiscal year.

Investor bids were last sluggish in July’s tap sale which saw offers of Ksh.38.5 billion against a target of Ksh.50 billion.

The missed mark represents a move away from the heavy investor appetites for government securities observed for the better part of 2020 and 2021.

In a flight to risk, local investors have continued to pack funds in the industry as risk averseness remains prevalent since the start of the COVID-19 pandemic.

Bids in the last five available Treasury bonds (T-bonds) have for instance totaled to Ksh.466.8 billion against the offers’ target of Ksh.305 billion to show a Ksh.161.8 billion surplus.

This to put the average performance of the Treasury bonds in the financial year so far at 148.1 per cent.

The lower investor bids can however be traced to tightening liquidity levels in the financial markets.

“In the past weeks, liquidity in the money markets has shrunk on the back of a heavily oversubscribed IFB issue earlier in the month, as well as, aggressive open market operations by CBK,” noted analysts at AIB-AXYS Africa.

The tightening funding levels are further seen through the lens of the Central Bank of Kenya (CBK).

For instance, the average inter-bank rate as of September 30 swelled to 6.61 per cent indicating costlier overnight lending between commercial banks.

At the same time, the average number of inter-bank deals per day fell to 25 from 29 while their average value has fallen to Ksh.10.1 billion from Ksh.16.4 billion previously.

Nevertheless, the government has profited from the early head-start, leveraging previous high liquidity levels, to stay ahead of its local borrowing curve.

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