Sale of Sh50bn bonds sharply raises Q1 borrowing

The Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG 

By CONSTANT MUNDA
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Successful sale of the two re-opened 15-year bonds is set to raise government medium-term domestic borrowing in the quarter one of the current fiscal year nearly three-fold compared to a year ago.

The Treasury is this month seeking Sh50 billion from two 15-year bonds first issued in May this year
and May of last year in an ongoing sale that started Thursday last week up to September 17.

This will take medium-term borrowing from domestic investors to Sh160.27 billion in the first three months of the current financial year, 277.82 percent more than Sh46.42 billion raised in the same period a year earlier. The Treasury has apparently taken advantage of the relatively low-returns to cash-rich domestic investors – largely banks, fund managers and insurance companies –to raise more money in early days compared with the past few years.

The Central Bank of Kenya (CBK), the government agent in debt markets, has set 12.650 percent as the yield for investors bidding for the 15-year bond that will mature in just over 13.5 years, lower than average 13.078 percent when the paper was first issued in May 2018.

The yield for the 15-year paper, first sold in May, remains unchanged at 12.734 percent.

Average interest on domestic government debt have been trending lower this year due to increased liquidity in the market.

This is largely on the back of increased government payments and ongoing demonetisation of the Sh1,000 notes ahead of September 30 deadline amid reduced credit flow to businesses and households.

The CBK has already raised Sh110.27 billion in bond sales in July and this month, a steep rise from Sh19.87 billion a year ago.

“We believe the current high liquidity environment is transitory,” Churchill Ogutu, a senior research analyst at Genghis Capital, wrote in the fixed-income securities outlook report.