Treasury lines up Ksh.50 billion budgetary support bond in February sale


Treasury lines up Ksh.50 billion budgetary support bond in February sale
File Photo of The National Treasury.

In Summary

  • The sale of the bond by the Central Bank of Kenya (CBK) has seen the listing of a new fifteen year bond and the re-opening of a previous 25 year tenured bond whose present time to maturity stands at 23.3 years.
  • Treasury’s long-tenured bond issue comes even as the government struggles to attract investors to the long maturity debt profiles as investors’ back short ended paper to insure against duration risks.
  • The short ended Treasury papers are expected to remain in demand as the government comes under increased pressure to meet its domestic borrowing targets in the run up to the close of the 2019/20 financial year in June.

The National Treasury has lined up the sale of bonds worth Ksh.50 billion in February’s sale with proceeds from the trade going into budget utilities.

The sale of the bond by the Central Bank of Kenya (CBK) has seen the listing of a new 15-year bond and the re-opening of a previous 25-year tenured bond whose present time to maturity stands at 23.3 years.

The shorter paper will see investor returns paid out from a market determined rate with the latter carrying a pre-determined coupon rate of 13.4 percent.

Treasury’s long-tenured bond issue comes even as the government struggles to attract investors to the long maturity debt profiles as investors’ back short ended paper to insure against duration risks.

As such, the 364-day Treasury bill (T-bill) has recently become the gem for investors through its carrying of a more attractive risk-adjusted return with January subscription rates hitting 230.5 percent from a lesser 57.1 percent in December.

The bias towards the short end papers has however spared the National Treasury from carrying on higher than desired yields with the return on a 91-day, 182-day and 364-day Treasury bills registering marginal increases of 0.6, 0.5 and 0.3 percent respectively to stay clear of anticipated hikes from expected lower demand in the post rate cap era.

On the bonds counter, investors have yet again favoured shorter maturing paper at the expense of long maturity issues.

In January, the National Treasury re-opened a five and 10 year bond timed at 4.1 and 9.1 years at pre-determined coupon rates of 11.3 and 12.4 percent respectively to see demand in the Ksh.50 billion bonds total stick to the lower end with an 89 percent subscription rate.

The short ended Treasury papers are expected to remain in demand as the government comes under increased pressure to meet its domestic borrowing targets in the run up to the close of the 2019/20 financial year in June.

As of December 31, the National Treasury had already tapped Ksh.258.2 billion from the domestic bond market out of a gross target of Ksh.514 billion entailing Ksh.391.4 billion in net domestic borrowing and Ksh.122.6 billion in internal debt roll-overs.

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