Treasury asks for 60 billion shillings from May bond sale

Capital markets

Treasury asks for 60 billion shillings from May bond sale


The National Treasury building in Nairobi. PICTURES | NJAU SALATON | NMG

Summary

  • The interest rate on the 10-year bond will be determined by the market while the longer-dated paper, which has a maturity of 24.1 years, has a coupon of 13.924%.
  • The CBK raised 60 billion shillings from two bonds in April, falling short of its target of 70 billion shillings.
  • The new bond auctions come at a time when the stock market is on a sharp decline, a move that could see fixed income securities benefit from investors’ flight to lock in guaranteed returns.

The National Treasury is in the market and is looking to raise a total of 60 billion shillings 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 reopened 25-year note that was first auctioned in 2021.

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

Titles are on sale until May 10.

The CBK raised 60 billion shillings from two bonds in April, falling short of its target of 70 billion shillings. Part of the underperformance is due to the rejection of more expensive offers.

The new bond auctions come at a time when the stock market is on a sharp decline, a move that could see fixed income securities benefit from investors’ flight to lock in guaranteed returns.

Shares listed on the Nairobi Stock Exchange #ticker:NSE traded after most blue-chip companies closed their books for dividends and the fallout from Russia’s invasion of Ukraine intensified.

Major investors in Treasuries pushed for higher rates amid rising inflation and a weakening shilling against major global currencies.

The CBK fell short of its goal in declining the offers mainly due to 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 receive, while most retail investors usually settle for the market average.

The market average is largely influenced by offers from large investors who dominated the Treasury bill market.

The government plans to proceed with net new domestic borrowing of 581.7 billion shillings in the next fiscal year to finance the budget, with most obligations expected to be long-term.

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

The strategy aims to reduce the refinancing risk that arises when a large amount of debt must be repaid in a short period of time.

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