Kenya’s 2 and 15-year Treasury Bonds Enjoy Oversubscription and Increased Yields

Treasury Bills floated Wednesday by the Central Bank of Kenya were oversubscribed by 555.0%, driven by the 2-year bond, which attracted bids worth Ksh 50.2 bn out of the Ksh 66.6 bn bids received for the reopened 2-year (FXD1/2019/2) and 15-year (FXD1/2019/15).

The yields came in at 10.3% and 12.8% for the 2-year and 15-year bonds, respectively.

The government accepted Ksh 23.4 bn out of the Kshs 66.6 bn worth of bids received against Kshs 12.0 bn on offer.

Cytonn Investments said this “Translates to an acceptance rate of 35.2%, indicating that bids were largely not within ranges the CBK deemed acceptable.”

Observation from Genghis Capital indicated that on Thursday, the turnover dipped to Ksh 2.2Bn with trades mostly on the infrastructure bonds and the 10-year papers.

“We are seeing demand on the 5 to 10-year tenor papers in anticipation of the decline in rates in the auction,” they said.

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On balance, the results of the re-opening coupled with the week’s T-Bills has catapulted net domestic borrowing back on track with a cumulative actual performance at KES 172.45Bn against a pro-rated target of KES 170.50Bn. This will ease pressure off Treasury at least in the quarter which has a dearth in T-bond maturities. The high liquidity levels in the market inevitably lends credence to another far worrying trend: anaemic private sector credit growth (PSCG). Banks have simply slowed down lending to the real economy at the expense of plugging the domestic fiscal hole suggesting PSCG may have reduced to c.1.50% – 2.00% in January from 2.40% in December. Something has to give! – Genghis Capital

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Treasury Bills were oversubscribed in the auction by 198.26% with the CBK accepting Ksh 28Bn out of the Ksh 47.6Bn offered.

The 364-day T-bill was the most subscribed at 293.19%.

Early in the week, Commercial Bank of Africa Analysts said with the current heavy liquidity, persistent risk aversion to sustain demand for government papers, “Treasury will be more tactical in ensuring successful fund-raising with potential for more blended issues of shorter and longer term papers.”

This is because “revenue performance remains below Expectations” with the government having raised Ksh 149Bn in new domestic debt, against a full-year target of Ksh 310Bn.

“That said, continued yield search amidst sustained risk aversion could underpin more liquidity allocation towards the government papers. However, this remains primarily subject to the tenor. We believe that papers with less than 7-years to maturity are likely to attract considerable demand especially from commercial banks which hold 54% of the domestic debt.”