The government is back in the market for an extra Sh50 billion via auction of three bonds, which include a tap sale of a reopened two-year bond and two others with tenors of 10 and 20 years.
The first auction targets Sh20 billion and closes on July 4 while the second runs until July 17 and seeks to raise the balance of Sh30 billion.
Investors in the tap sale are set to get a return of 17.1225 percent and will pay a premium of Sh106.3186 for every Sh100 or the par value with the interest rate earned from the tap sale being locked in from the paper’s last issuance.
The yield is still a premium to the 16.9723 percent rate of return achieved during the paper’s first issuance last year or the coupon rate.
The CBK will, meanwhile, seek to bring investor bids close to the return of 16 percent and 13.75 percent achieved in the first issuance of the re-opened 10 and 20-year papers.
The 10-year paper was first issued in February this year and had a fixed rate of return contrary to regularly issued bonds whose return is usually market determined.
The paper signaled CBK’s quest to bring down interest rates on government securities even as its push is derailed by expensive bids from investors.
Investors continue to demand a premium to hold government bonds in the stay of high interest rates and increased domestic borrowing by the State.
The target for domestic borrowing in the financial year closing June 30 has, for instance, been raised in the backdrop of the widened fiscal deficit to Sh908.6 billion from Sh718.9 billion.
Government plans to reset the deficit downwards to Sh597 billion in the financial year starting July 1 have been put on hold in the face of a withdrawn 2024 Finance Bill that contained new taxation measures to increase domestic revenues and proposed changes to spending plans for the same period.
Treasury Cabinet Secretary Njuguna Ndung'u had proposed domestic borrowing across the 2024/25 financial year at Sh263.2 billion while the target for external financing is Sh333.8 billion.
CBK has been betting on a lower fiscal deficit and a smaller domestic borrowing target to bring down interest rates on government securities as the lower target discourages the push for higher returns by investors.
Proceeds from the July bond auctions will represent the first nettings of the 2024/25 financial year domestic borrowing target.
This month, the CBK closed its borrowing programme by mobilising Sh84.8 billion against a target of Sh80 billion after bond sales covering reopened two, three, five, and 10-year papers.
CBK has been issuing papers with varying tenures or maturities in a bid to lower interest rates on government securities in the short to medium-term.
