Treasury stretches debt maturity to 5.7 years

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

By CHARLES MWANIKI
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Summary

• CBK governor Patrick Njoroge says the option of having maturing Treasury bills rolled over using medium-term bond offerings is another option that the regulator is considering as a means of lengthening the maturity profile of local debt.

The maturity profile of domestic debt has lengthened to 5.7 years from 4.1 years two years ago on the back of a sustained effort to issue longer-term securities, Central bank of Kenya (CBK) has announced.

CBK governor Patrick Njoroge said during a virtual briefing following the Monetary Policy Committee (MPC) meeting last week that the option of having maturing Treasury bills rolled over using medium-term bond offerings is another option that the regulator is considering as a means of lengthening the maturity profile of local debt.

The first such option was put on the table in May, where investors holding Sh24.7 billion worth of maturing 364-day paper were exclusively offered the chance to use these proceeds to buy a six-year, Sh25.8 billion infrastructure bond — otherwise known as a switch bond.

The CBK took up Sh19.3 billion from the offers of Sh21.2 billion, which potentially signals such offers may become more common in future.

“This is just one more option on the table for us…It also lengthens the maturity profile of domestic debt. The overall maturity profile of our portfolio of securities has increased to 5.7 years, from 4.1 years in June 2018,” said Dr Njoroge.

“For the Treasury bonds alone, the profile is now 7.9 years from 6.1 years in June 2018.”

David Rogovic, a senior analyst at Moody's Investors Service, said in an earlier briefing it sees the switch bond as a means of managing liquidity risk, rather than liquidity pressure.

Such bonds, he said, are useful for lengthening the maturity profile of domestic debt, something that the CBK and Treasury have been trying to do.

“If the issue was a financing crunch, they (Treasury) would normally turn to short-term paper, rather than rolling over T-bills using longer-term bonds. We, therefore, see this debt restructure as a positive,” he said.

The governor also disclosed that the government is close to hitting its domestic borrowing target for the current fiscal year ahead of schedule.

The Treasury has obtained 97.1 percent of its domestic borrowing target of Sh389.7 billion for the current fiscal year, sparing the government the need to raid the market with any urgency in the next month.

“The expectation of government borrowing surging at the end of the fiscal year will not happen,” said Dr Njoroge.

This could mean yields on government securities will remain stable in the short term, considering also the relatively liquid interbank market, and the dearth of other investment options for investors in the Covid-19 hit economy.