The Central Bank of Kenya seeks to raise Ksh 50.00 billion by selling three reopened bonds, FXD1/2022/03 (2.7 years), FXD2/2019/10 (6.7 years) and FXD1/2021/20 (19.10 years).
The bonds have coupon rates of 11.766%, 12.300%, and 13.444%, respectively.
“The Central Bank will rediscount the bonds as a last resort at 3% above the prevailing market yield or coupon rate, whichever is higher, upon written confirmation from the Nairobi Securities Exchange.
“Whereas the duration of the first two papers may appeal, investors will still demand high yields to compensate for the low-interest income and potential revaluation losses on the issues, “NCBA Market Research says in its Weekly Fixed Income Report.
“We expect the bonds to be undersubscribed as investors continue to attach higher risk premium on the country due to the increased perceived risks arising from increasing inflationary pressures, the upcoming elections and local currency depreciation, “Analysts from Cytonn Investments note.
The bonds are currently trading in the secondary market at yields of 11.7%, 13.5% and 13.9% for FXD1/2022/03, FXD2/2019/10 and FXD1/2021/20, respectively.
The period of sale for the bonds runs from 29th July to 16th August 2022.
The FXD2/2013/15 and FXD2/2018/15 were issued for July to raise Kshs 40.0 billion for budgetary support. The bonds were undersubscribed, receiving bids worth Kshs 10.6 billion against the target, translating to a subscription rate of 26.4%.
The government also released the tap sale results for the infrastructure bond, IFB1/2022/018, to raise Kshs 20.0 billion for funding infrastructure projects. The bond was also undersubscribed, receiving bids worth Kshs 6.4 billion, translating to a subscription rate of 32.1%.
“The average tenor for the July bonds came in at 16.0 years higher than June’s 12.0-year average tenor. The weighted average rate of accepted bids for the July bonds was 13.6%, 0.4% points higher than the 13.2% average rate for the June bonds. This reflects the increased perceived risk as we approach the August elections,” Cytonn Investments disclosed in their monthly July fixed income report.
Rates in the Fixed Income market have remained relatively stable due to the relatively ample liquidity in the money market. As is it early in the financial year, the government is 30.5% behind its prorated borrowing target of Kshs 46.3 billion, having borrowed Kshs 32.2 billion of the Kshs 581.7 billion borrowing targets for the FY’2022/2023.
Why CBK is Under Pressure to Accept Aggressive Bids for Long-Term Debt
