Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
CBK eyes Sh80bn from bond sale to fund big May payment
The cut in the CBK’s base rate in the April monetary policy committee meeting is expected to lower bond yields further in the near term, with investors keen on locking in the present rates.
The Central Bank of Kenya (CBK) is eyeing a fresh Sh80 billion from Treasury bond buyers in its May 2024 issuance to finance a large maturity of Sh83.6 billion falling due next month.
CBK opened the sale of the three-tranche bond on Wednesday, targeting Sh50 billion from a pair of reopened 15 and 25-year papers first issued in April and October 2022, respectively, and another Sh30 billion from a reopened 20-year bond first issued in November 2012.
The sale of the 15 and 25-year papers will run until April 30, while the 20-year bond will be in the market until May 7.
The 2022 papers were also part of a three-tranche April bond issuance which raised Sh84 billion against a target of Sh70 billion, where the 15-year contributed Sh20.9 billion and the 25-year Sh32.5 billion.
Proceeds of the April sale went towards repaying maturities of Sh90 billion, rather than new borrowing for the exchequer.
The maturities comprised Sh51.3 billion on a three-year bond sold in 2022 and a partial repayment (amortisation) of about Sh38 billion on a nine-year infrastructure bond sold in 2020.
In seeking an additional Sh80 billion from the May sale, the government is looking to cover further bond maturities of nearly Sh84 billion, coming from a five-year paper floated in May 2020 (Sh69.4 billion) and a nine-year infrastructure bond that was sold in May 2016 (Sh14.2 billion).
These elevated maturities in April and May saw the government opt to make an early, partial buyback of the three and five-year bonds and the nine-year infrastructure bond in February, which netted Sh50 billion and thus cut their combined outstanding amount from Sh185 billion to Sh135 billion.
The efforts to address the maturities have also been helped by the growing appetite among investors for longer-dated bonds amid an expectation that interest rates will come down further in the short term.
The cut in the CBK’s base rate from 10.75 percent to 10 percent in the April monetary policy committee meeting is expected to lower bond yields further in the near term, with investors keen on locking in the present rates.
Short-term rates on the Treasury bills segment have already declined to three-year lows on the back of the recent rate cuts, with the 91-day and 182-day papers trading below eight percent, and the 364-day on the brink of falling into single digit level at 10.07 percent.
There is also reduced competition from new borrowing for budget financing, given that the CBK had frontloaded on the borrowing programme in the months when it faced low or no bond maturities.
Last month, CBK disclosures showed that the government was ahead of target in its revised domestic borrowing target of about Sh605 billion with net collections of Sh653 billion, meaning that it could focus on raising enough to refinance the heavy maturities in April and May.
