Treasury issues second long term bond at higher rate

The Treasury Building in Nairobi. Treasury has moved to shift investors’ preference for short-term bills by floating a second 15-year bond this year at a higher interest rate. Photo/FILE  NATION MEDIA GROUP

By GEOFFREY IRUNGU

In Summary

• Bond dealers said the higher indicative interest rate is meant to lure investors to the longer end of the yield curve.
• The 15-year bond will go for 12 per cent coupon. Another five-year paper is to be sold at a market-determined coupon. CBK information shows that both issues are intended to raise Sh25 billion.

Treasury has moved to shift investors’ preference for short-term bills by floating a second 15-year bond this year at a higher interest rate.

Bond dealers said the higher indicative interest rate is meant to lure investors to the longer end of the yield curve.

The average maturity of Treasury debt has been falling as it has taken in more short-term paper at a time when interest repayments have also tripled to about Sh75 billion, compared to the level at the end of last September.

READ: Interest payments on domestic debt triple to Sh74.9bn

From CBK’s most recent weekly update the average maturity stands at five years, down from five years and four months nine months ago.

The 15-year bond will go for 12 per cent coupon. Another five-year paper is to be sold at a market-determined coupon. CBK information shows that both issues are intended to raise Sh25 billion.

READ: Kenya to sell 5, 15-yr bonds worth Sh25bn in April

The Treasury has had a lot of redemptions in the past few months and needs to redirect the liquidity in the market to issues where it won’t have to pay too much interest.

“It seems due to the high debt redemptions, Treasury is trying to rollover the debt onto the longer end of the yield curve,” said Alexander Muiruri, a fixed-income trader with African Alliance Investment Bank.

Mr Muiruri noted that the coupon rate on the 15-year paper has been rising since September when it stood at 11 per cent, before rising to 11.25 per cent in February to now stand at 12 per cent. He, however, noted that in 2008 and 2009 the 15-year paper had coupons at 12.50 per cent.

In its weekly bulletin dated April 12, the CBK said the success of raising cash through T-bills was behind the rapid rise in domestic debt, causing the average maturity to fall.

“During the week ending April 5, 2013, gross government domestic debt increased by Sh18.6 billion on account of Treasury bills,” said the CBK.

Mr Muiruri said the government had lately been able to raise cash from the market, even if this was through shorter-dated securities.

“We estimate Treasury has raised Sh155.2 billion in domestic versus their Sh137.2 billion mentioned in the January 2013 Budget Policy Statement. So I won’t say that they’re desperate to raise cash but targeting the long end for new borrowings,” said Mr Muiruri.

The CBK weekly bulletin said the regulator had mopped through repos and term auction deposits Sh52.4 billion against maturity Sh42.7 billion — a net removal of cash of about Sh10 billion from circulation.