Central Bank of Kenya seeks to raise KSh 60 Billion in Treasury Bonds to support the current fiscal year ‘ambitious’ budget.
According to the CBK, investors interested to bid the re-opened Five -year, Ten -year and Fifteen -year Fixed-Coupon Treasury Bonds (FXD1/2020/05, FXD2/2018/10, and FXD1/2019/15) must submit them by 2.00 p.m on Tuesday, 21st July 2020 with auction date set for 22nd July 2020.
The bonds will be rediscounted as a last resort at 3 percent above the prevailing market yield or coupon rate whichever is higher, upon written confirmation to do so from the Nairobi Securities Exchange (NSE).
The bonds will be listed on the NSE with secondary trading in multiples of KSh 50,000.00 to commence on Tuesday, 28th July 2020.
CBK’s prospectus says the discount/interest is subject to withholding tax at a rate of 15 percent for the 5-year and 10 percent for the 10 and 15-year.
The bonds redemption dates are Five year -05/05/2025, Ten year – 04/12/2028 and Fifteen year-09/01/2034.
“The Bonds may be re-opened at a future date,” says the CBK.
Currently, the Government Domestic Debt, in terms of Treasury Bonds has risen from KSh 2.09 Trillion as at 31st March 2020 to KSh 2.22 Trillion on 26th June 2020.
The Government’s gross domestic debt stands at KSh 3.178 Trillion, which includes Treasury Bills and Bonds, overdraft from CBK, and other domestic debt.
Treasury Bonds comprise 69.84% of the domestic debt while Treasury Bill accounts for 23.87% of the debt.
CBK data shows that banking institutions are the largest holders of Government debt, at 54.8% followed by pension funds( 29.1% ) insurance companies( 6.1%), parastatals( 5.7%) and other investors( 4.3%).
Treasury bonds are a secure, medium- to long-term investment that typically offer you interest payments every six months throughout the bond’s maturity.
Renaldo D’Souza, Head Of Research at Sterling Capital Limited, “The issuance of multi tenor debt appears to be a strategy aimed at appealing to different investor segments. Current market liquidity levels and the absence of high yielding alternative investment options means relatively high subscription, especially for the 5-year bond. Investors though will continue to invest most of their liquidity in short term dated securities (T-Bills).”
According to NCBA Research, “The auction may act as a gauge for market expectations, considering the uncertainty, liquidity, and the anticipated level of government borrowing. Investor preference may stick on the short tenure, although demand for longer maturity considering the dearth of options, cannot be gainsaid. Even then, it is likely that the bulk of bids will be on the five-year while more funds will be absorbed on longer tenors.”
