The National Treasury raised Ksh 55.9 billion as new proceeds from its 2-year bond (FXD1/2021/2) against a Ksh 25 billion target.
The bond attracted bids worth Ksh.61.2 billion equivalent to 244.6% subscription rate.
“We attribute the oversubscription to the bonds short tenor, as well as high demand from banks looking for short term liquidity investments,” said Sterling Capital Research.
Central Bank of Kenya auctioned the bond at 9.486%.
On the other hand, NCBA Market Research said the bond issue coincides with about Ksh 75 billion in T-bill maturities.
They note it bodes well for the government’s public debt maturity lengthening objective by directing liquidity from shorter-term T-bills to the bonds (2-year T-bond & 16year IFB).
Both analysts are of the view that greater investor focus will remain on the short end of the yield curve.
“We expect banks participation in the bonds market to decline while focusing shifts to the short end of the yield curve and the Infrastructure Bond (IFB1/2021/16) currently on offer,” according to Sterling Capital.
On the other hand, NCBA notes that “No doubt pressures on yields is expected to remain upwards, albeit gradual, thanks to the heavy T-bill maturities over the next few days. In the third quarter, yields rose marginally at an average of 26bps across the curve. The pace has accelerated in recent weeks, driven by thin liquidity and the increased public borrowing pressure.”
“Higher than expected yields may give confidence to the current bearish bias on the curve, although this is still expected to be gradual,” they add.
Debt service in January amounts to Ksh.174.7 billion, a 137.3% increase over debt service in December 2020. This comprises of Ksh.128.8 billion in T-Bills, Ksh.31.1 billion in T-Bonds and Ksh.14.8 billion in coupon payments.
“The sharp increase in domestic debt service this month implies that a big proportion of funds raised particularly in T-Bill auctions will be directed towards debt redemptions rather than new borrowing,” says Sterling Capital Analysts.