CBK seeking Sh60bn from re-opened bonds auction
The Central Bank of Kenya in Nairobi.
What you need to know:
- CBK will be seeking to nudge investors to longer-term securities.
- CBK has also been seeking to drive down interest rates even lower.
The Central Bank of Kenya (CBK) is seeking to raise Sh60 billion from four reopened bonds this month even as the apex bank continues its quest to drive down interest rates on the securities.
The four reopened papers are being sold in pairs with the first auction including two and three year bonds with remaining terms to maturity of 1.2 and 2.6 years respectively.
Kenya plans Chinese, Japanese bonds to fund Sh326bn deficit. The second pair of reopened bonds cover five and 10-year papers, both offered first to investors last year and have tenors of 4.1 and 8.78 years respectively.
The first pair of bonds will be on sale until Wednesday this week while the latter will remain on auction until June 12.
The CBK will be seeking to drive down interest rates by influencing bids around the papers’ coupon rates, which represent the weighted average rate for accepted bids at their most recent issue.
Lower interest rates
The two-year paper for instance closed its most recent sale at a weighted average rate of 16.9723 per cent, 18.3854 per cent for the three-year paper, 16.844 per cent for the five-year bond and 14.151 per cent for the long-dated 10-year bond.
At the same time, CBK will be seeking to nudge investors to longer-term securities by selling more of these bonds and scaling down its reliance on short-dated papers that dominated auctions when interest rates were rising rapidly.
The banking sector regulator has already seen some success in achieving the pair of targets based on the performance of its recent new 10-year bond.
Between March and May for instance, the CBK mobilised Sh34.7 billion from a new 10 year paper which has had subsequent sales including re-openings and tap sales that have helped drive down the weighted average rate of accepted bids to 16.2273 per cent from 17.7593 per cent at first auction.
CBK has been seeking to drive down interest rates even lower, having first set a coupon of 16 per cent for the 10 year paper that was first auctioned in March 2024.
Reduced inflation
Bids on longer-dated bonds have largely underperformed as investors flock to the short end, leading to the CBK missing its revenue mobilisation target from domestic borrowing.
The CBK is, however, anticipating a fall of interest rates on Treasuries supported largely by a lower than projected fiscal deficit and reduced inflation.
Recent external disbursements from multilateral lenders such as the World Bank and the International Monetary Fund (IMF) have for instance cut the government’s dependence on the domestic credit markets.
At the same time, inflation has trended downwards over recent months, hitting the government desired mid-point of 5.1 per cent last month (May).
