The National Treasury has raised Sh48.5 billion from an oversubscribed bond whose sale closed on Wednesday, even as the Central Bank of Kenya (CBK) turned away Sh10.5 billion worth of expensive bids from investors.
In the January issuance, the CBK reopened a 15-year paper first issued in 2018 and a 25-year bond whose debut sale was done in 2022, with a combined target of Sh30 billion.
Investors offered Sh30.58 billion on the 15-year tranche, and Sh28.42 billion on the 25-year option, with the CBK taking up Sh23.75 billion and Sh24.73 billion from the two papers respectively.
The 15-year bond came with a coupon of 12.65 percent, with a period to maturity of 8.3 years, while the 25-year has a rate of 14.18 percent and a period to maturity of 22.8 years.
Buyers demanded a return or effective yield of 14.32 percent on the shorter bond and 15.74 percent on the 25-year paper, with the CBK settling at 14.2 and 15.68 percent for the two tranches.
To accommodate the difference between the yields and the coupon, the bond buyers were given price discounts of Sh5.34 and Sh5.75 respectively per bond unit of Sh100.
“CBK continues to tame aggressive bidding to lower borrowing costs despite the government’s high budgetary requirements,” said analysts at Sterling Capital in a note on the bond results.
The bond auction came amid falling interest rates, which has allowed the Treasury to float longer dated paper as it looks to lengthen the maturity profile of domestic debt, which has shrunk over the past year due to issuance of short dated securities in the previously high-interest rate environment.
As at June 2024, the average time to maturity for Kenya’s overall public debt fell to 7.8 years from 9.4 years in June 2023. On domestic bonds, the time to maturity shrunk to 7.5 years from 8.6 years in 2023.
Overall yields in the secondary bonds market, which provide a barometer of the returns investors would seek in new issuances, have fallen to the 12 to 15 percent range from as high as 19.5 percent in October last year.
For instance, an 8.5-year infrastructure bond which was issued in February 2024 at a coupon of 18.46 percent is now trading at a yield of between 13.8 and 13.9 percent. This means that if the government were to issue the same bond today, it would pay interest of between 13.8 and 13.9 percent.
