Central Bank Floats KSh 50 Billion for Budgetary Support

The Central Bank of Kenya (CBK) which represents the exchequer’s primary debt auctioneer has listed two bonds- a re-opened 15 year issue and a new 25 year bond.

Kenya National Treasury building

The Central Bank has floated 15-year and 20-year Treasury Bonds worth KSh 50 Billion to finance its development projects.

The bonds would be auctioned on Wednesday, 16th September 2020.

CBK says the Bonds may be re-opened at a future date. 

Secondary trading of these instruments, in multiples of KSh 50,000.00, will commence on Tuesday, 22nd September 2020.

“We anticipate secondary market activity to be crowded at the short-end of the curve,” according to Genghis Capital.

On the other hand, NCBA Research Analysts state that the yield curve could be more sticky as liquidity conditions normalize.

For instance, the week ending August,  CBK had initially injected Ksh 35 billion, mopped up Ksh 12.10 billion in excess cash at a yield of 3.42%, signaling some return to normalcy in the market.

“This could enhance some confidence in the recent yield curve rally as investors come back to the market in search for yield,” they noted.

They further note, the government’s elevated debt appetite will continue to invite caution, limiting the move lower on the curve. “This may however be subject to the market’s appetite and the availability of other comparable investment channels.”

Liquidity conditions are expected to remain more or less unchanged. A situation Cytonn Investments says has contributed to rates remaining relatively stable coupled with the discipline by the Central Bank as they reject expensive bids.

“In our view, the government will not be able to meet their revenue collection targets of Kshs 1.9 trillion for FY’2020/2021 because of the current subdued economic performance in the country brought about by the spread of COVID-19, and therefore, leading to a larger budget deficit than the projected 7.5% of GDP, ultimately creating uncertainty in the interest rate environment as additional borrowing from the domestic market will be required to plug in the deficit,” Cytonn states.

The government is 89.9% ahead of its prorated borrowing target of Kshs 93.5 billion having borrowed Kshs 177.5 billion.