Treasury stretches average bonds maturity to 8.5 years

Central Bank of Kenya. FILE PHOTO | NMG

By CHARLES MWANIKI
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Summary

• The maturity profile of Treasury bonds has lengthened by nearly 1.5 years since the beginning of 2019, reflecting concerted efforts to issue longer dated securities to reduce refinancing risk.
• CBK governor Patrick Njoroge said Thursday that one of the targets that the regulator had set a year ago was to not only lengthen the maturity profile, but also reduce the share of total debt held on form of short-term Treasury bills.

The maturity profile of Treasury bonds has lengthened by nearly 1.5 years since the beginning of 2019, reflecting concerted efforts to issue longer dated securities to reduce refinancing risk.

Central Bank of Kenya (CBK) governor Patrick Njoroge said Thursday that one of the targets that the regulator had set a year ago was to not only lengthen the maturity profile, but also reduce the share of total debt held on form of short-term Treasury bills.

As a result, the average term to maturity of Treasury bonds has grown to 8.5 years from 7.96 years in January 2020 and 7.09 years in January 2019.

In mid-2018, the average maturity of bonds had fallen to 6.1 years.

At the same time, the share of government’s domestic debt held in form of T-bills has fallen to 22.8 percent from 29.9 percent a year ago, while that held in form of bonds has gone up to74.98 percent from 67.1 percent.

“One of the targets that we had a year ago was to lengthen the average term to maturity of our securities and at the same time reducing the dependency on Treasury Bills, which are really meant for liquidity management, not for long-term financing of government projects,” said Dr Njoroge at a post Monetary Policy Committee meeting media briefing yesterday.

“We are just taking advantage of the appetite (for longer dated securities) in the market…the important thing is to make sure that the market is operating correctly, and the pricing is correct, and that there are no shocks that are being introduced.”

The Treasury and CBK’s efforts to lengthen the maturity of domestic debt was informed by the need to avoid refinancing risk, which goes up when there is a lot of debt coming due within a short period.

This has seen the government largely issuing long dated bonds of between 15 and 25 years.