The National Treasury’s 14-year infrastructure bond (IFB1/2022/14) received bids valued at KSh91.8 billion and was oversubscribed by 153 per cent due to high-interest rates offered by the Central Bank of Kenya.
The Government accepted Ksh75.6 billion. The average rate of the accepted bids was 13.94 per cent, against an average of 14.03 per cent demanded by investors.
Additionally, investors bidded aggressively beyond the 14% psychological level (14.008%), with the CBK accommodating the Average Weighted Rate (WAR) of accepted bids at 13.938%.
“This suggests aggressive investor bidding in subsequent long-term FXD bond auctions. The high acceptance rate of Ksh.75.6 billion was expected given the October bonds undersubscription and the ever-growing budget deficit financing pressure,” Sterling Capital Research notes.
“FB1/2022/14 yield of 13.938% speaks to the impact of fiscal deficit pressures, high inflation, and the CBR revisions on interest rates. With every new debt issue, we witness a further upward shift in the yield curve. The yield differentials on medium- and longer-dated bonds have narrowed in recent months, and this auction points towards a gradual normalization of the yield curve.
“Across the curve, yields are anticipated to trend higher, although the central bank’s efforts to quell expensive bids should moderate the upward adjustment. However, as the sovereign’s credit options diminish, it may become more willing to accept higher interest rates,” said analysts at NCBA in a fixed income note.
Market analysts note that the Government is behind its revenue targets and will have to increase borrowing to bridge the funding gap.
For instance, total Government receipts at the end of September 2022 stood at Ksh.680.7 billion, which was 13% lower than the Ksh.782.2 billion at the end of the same period in 2021.
Domestic borrowing over the same period stood at Ksh 95.7 billion or 68.8% lower than the Ksh 306.8 billion recorded in September 2021.