The Central Bank of Kenya (CBK) has raised Sh61 billion from four bonds sold last week, surpassing its target for this month’s auctions.
The amount surpasses the Sh60 billion target from the four reopened papers that were targeted, not only raising fresh funding for the fiscal budget to June 30 but also enticing investors towards buying long-dated government securities.
The CBK’s most recent auction of two of the four papers offered to investors this month — the re-opened five- and 10-year papers— has mobilised Sh30.1 billion.
This is after a huge investor interest at Sh41.5 billion but where the bulk of bids were concentrated on the shorter-dated five-year paper at Sh22.5 billion.
The CBK has, however, struggled to contain interest rates on the two papers with the weighted average rate of accepted bids closing at 18.1645 and 16.3924 percent for the re-opened five and 10-year papers, respectively, against coupon rates of 16.8440 and 14.151 percent.
The coupon rate describes the weighted average rate of bids at initial issuance where a higher rate in subsequent auctions signals a greater return to investors and higher costs for the CBK.
The bias for the re-opened five-year paper over the 10-year one mirrors continued investor jitters over duration risks which has seen the CBK struggle to drive the acceptance of longer-dated bonds.
Last week, the CBK mopped up Sh30.8 billion from the auction of re-opened two and three-year Treasury bonds in the first part of the June auctions.
Bids for the pair of bonds, however, differed from the latter with investors taking more interest in the slightly longer three-year reopened bond with bids of Sh23.8 billion from Sh32.8 billion in total bids.
The CBK, however, contended with aggressive investor bids as the weighted average rate of accepted bids in the auction was pushed up to 17.1225 and 17.5862 percent respectively against the papers’ coupon rates at 16.9723 and 18.3854 percent. From both auctions, the CBK continued to reject aggressive investor bids even as it was forced to contend with the demand for relatively higher interest rates.
With the CBK Governor Kamau Thugge having recently called a peak in domestic interest rates on government securities, the apex bank has attempted to drive investors towards accepting longer-dated products.
