The Treasury has opened a new bond sale targeting Sh60 billion, amid difficulties in raising debt locally as investors continue demanding higher rates before lending to government.
The bonds consists of two reopened papers – 10-year and 15-year bonds first sold in 2017 and 2020 respectively, seeking Sh40 billion— and a new 25-five-year paper targeting Sh20 billion.
The reopened 10 and 15-year papers, which have 4.9 years and 12.3 years to maturity respectively, are offering interest at 12.97 percent and 12.76 percent, on average about a percentage point below what investors have been demanding in recent auctions.
The Central Bank of Kenya (CBK)—the government’s fiscal agent—said the interest rate for the 25-year bond will be determined by the market.
The auction comes at a time when the State has been struggling to raise its targeted amounts from the local debt market. September’s issuance that targeted Sh50 billion raised Sh39.02 billion from bids of Sh46.1 billion.
In the first two months of the fiscal year (July and August), the government issued three bonds seeking a total of Sh110 billion, but only managed to raise Sh54.2 billion.
In the current fiscal year, the government is targeting to borrow Sh578.6 billion from the domestic market, as part of financing for a Sh845 billion budget hole.
Banks, which are the biggest holders of government debt, have been wary of taking on new bonds due to valuation losses on their holdings when secondary market yields are going up. Bond prices or valuations fall when yields rise.
There has also been little in the way of foreign investor interest in the local securities market, given the higher rates on offer in the US, which is deemed a safe haven in times of global economic uncertainty.
The sale however comes in a period of relatively high liquidity in the money market, which would ideally help the sale due to limited investment returns in other asset classes such as equities.