- The focus of the week will be the primary bond auction on Wednesday.
The Treasury has reopened the 10-year (FXD1/2019/10) and five-year bonds ((FXD1/2019/5) targeting KSh50 billion from the local market.
This is after its first issue in December, the 10-year KSh50 billion bond was heavily undersubscribed receiving KSh38.3 billion bids.
The two have an effective tenor of 4.1 and 9.1 years, respectively, and coupon rates of 11.3% and 12.4%.
“We expect yields on the dual-tranche January primary bond to be priced at a slight premium (from current levels) on increased domestic borrowing pressure. The historical 3-year average on the 5-year and 10-year yields has been 11.84% and 12.61%, respectively,” Genghis Capital says.
“We believe that the apex bank’s dual-tranche issuance of 5-year and 10-year front runs the Medium Term Debt Management Strategy (MTDMS) which is expected mid-February. Currently, the overall life of fixed-rate bonds is 7.46years and we expect the upcoming MTDMS to be biased towards medium-term bond offerings.
In terms of years to maturity, the 5-year papers account for 8.5% of the outstanding fixed-rate bonds while the 10-year papers account for 11.15%. We thus anticipate higher subscription for the 5-year paper due to pent-up demand for shorter-term papers,” Mr Churchill Ogutu, a senior research analyst at Genghis Capital said.
Cytonn Investments also are of the view that the weighted average of accepted bids will come in at 11.3% – 11.5% for the FXD1/2019/5 and 12.1% – 12.3% for the FXD1/2019/10, given that they are currently trading at 11.3% and 12.1% on the yield curve, respectively.
During the week, the Central Bank of Kenya (CBK) received KSh28.35 billion bids against the advertised KSh24 billion representing 118.13 percent subscription for the Treasury bills.
The yields on the 91-day, 182-day and 364-day papers increased by 3.2 bps, 2.5 bps and 0.9 bps to 7.2%, 8.2% and 9.8%, respectively.
“We note that the 364-day paper continued to receive the most interest from investors, having recorded the highest subscription rate of the 3 papers, at 169.9%. This is attributable to the market currently pricing that the government will be under pressure to meet its domestic target and as such a bias to shorter-dated papers in order to avoid duration risk, which has seen most investors still keen on the primary fixed income market, finding the 364-day T-bill more attractive on a risk-adjusted return basis,” analysts from Cytonn Investments.
