Kenya’s National Treasury through the central bank has reopened re-opened bids for a five-year and a 10 year Treasury Bond ( FXD3/2019/5 & FXD4/2019/10 ) worth KSh 40 Billion for budgetary support as it races before the end of the 2019/20 fiscal year.
The 5-year bond has a coupon rate of 11.492 percent while the 10-year bond has a coupon rate of KSh 12.280 percent, with a tenor of 4.48 years and 9.42 years respectively.
The sale will be between 4th June and 16th June 2020. Investors seeking to participate are required to invest a minimum of KSh 50,000.
Only investors with Central Depository System account at the CBK are eligible. Bids will close on 16th June 2020 with the auction date set for the next day.
“While there may be greater appetite for the former, prospects of a further decline in yields in the near term may still support duration play. Moreover, the government’s plan to lengthen the curve may see supply of papers (10 years and below) thin out if the government makes true its promise and steer clear off the shorter end. Should the market believe this, then the ten-year should also attract notable demand.
Considering the aforementioned liquidity, we expect that the papers will not considerably deviate from their current implied yield to maturity and sell at 11.20-11.50% and 12.30- 12.50% for the five and ten-year papers respectively.,” noted NCBA Analysts.
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On the other hand, Cytonn Investments has noted that rates in the fixed income market have remained relatively stable as the government rejects expensive bids.
The government is 16.1 percent behind of its current domestic borrowing target of 404.4 billion, having borrowed Kshs 300.0 billion against a prorated target of Kshs 357.7 billion. The government had also borrowed 98.4 billion (42.3%) of the 232.8 billion foreign borrowing target, as at 31st March 2020.
“The uncertainty brought about by the novel Coronavirus will make it harder for the government to access foreign debt due to uncertainty affecting the global markets which might see investors attaching a high-risk premium on the country.
A budget deficit is likely to result from the depressed revenue collection with the revenue target for FY’2019/2020 at Kshs 2.1 trillion creating uncertainty in the interest rate environment as additional borrowing from the domestic market goes to plug the deficit,” Cytonn Observes.
