Kenya to raise Ksh40 Bn with 2 and 15-year Treasury Bonds

High Market Liquidity Helps Kenya Treasury to Access Cheaper Deficit Financing

Central Bank of Kenya building

The Central Bank of Kenya, on behalf of the government, has put on offer two new issues of 2-year (FXD 1/2019/2) and 15- year (FXD1/2019/15) fixed coupon treasury bonds this January.

The amounts raised will go into supporting the country’s 2018/19 fiscal budget.

According to the Central Bank of Kenya, the Bonds are subject to withholding tax at the rate of 15% for the two-year bond and 10% for the fifteen-year bond.

The bank will receive bids for the bond until Tuesday, 22nd January 2019 and auction it on 23rd January 2019.

According to Faith Atiti and Stephanie Kimani, CBA Analysts, “The two-year paper could receive a greater portion of investor bids albeit aggressive given limited investment opportunities in the market.”

The bonds will be listed on the Nairobi Securities Exchange.

According to the latest estimates, the government is lagging behind its domestic debt target having only achieved 16.9% of its target.

With six months left to the end of the fiscal year 2018/19, the government has so far absorbed KES 46.00 billion from the local debt market. “ Plausibly an indication that the government is reevaluating its maturity profile,” adds the CBA Analysts.

This is because the appetite for long term government debt has remained low due to the unattractive returns as the term structure of interest rates has been impacted by the interest rate cap.

In 2018, T-bills auction recorded an oversubscription with the average subscription rate coming in at 123.2% compared to an average of 110.5% in 2017. The yield on the 91-day, 182-day and 364-day T-bills declined by 80 bps, 160 bps and 120 bps to close at 7.3%, 9.0% and 10.0% in 2018 from 8.1%, 10.6% and 11.2% at the end of 2017, respectively.

“This is mainly attributed to the Central Bank of Kenya’s (CBK’s) efforts to keep rates low by rejecting expensive bids,” notes Cytonn Investments’ Annual Markets Review 2018.

However, Primary T-bond auctions in 2018 were undersubscribed with the subscription rate averaging 75.8% lower than the average subscription rate for 2017, which came in at 100.2%.

According to Cytonn, this was mainly attributed to efforts by the government to raise its debt maturity profile to reduce the potential rollover risks in the medium term, by issuing longer-dated papers, which recorded lackluster performance due to uncertainties in the interest rates environment with the proposal of repealing the interest rate cap having been tabled in parliament through the Finance Bill 2018.