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Investors pay premium in reopened bonds sale
Previously, long term securities such as the reopened 25-year papers were the preserve of institutional investors such as pension funds, while banks and retail investors preferred shorter dated papers including Treasury bills.
Investors are now paying a premium for reopened bonds carrying higher returns, as they race to secure the much sought-after securities in a market where interest rates are falling.
The latest bond sale which closed last week, comprising two re-opened 20 and 25-year papers, saw investors pay Sh106.46 and Sh111.97 respectively per bond unit of Sh100—effectively absorbing an upfront loss by paying above the face value of the securities.
Ideally a unit of a bond is priced at Sh100 with investors getting a return from interest rate. But a scramble for reopened bonds, which are paying a higher return compared to fresh paper, has seen investors pay above the Sh100 for a piece of the papers.
The two reopened bonds came with an interest of 12.87 percent and 13.92 percent, which are higher than the prevailing average of 11.8 percent for new papers.
“Going by the recent primary market auctions, we can conclude that there is ample liquidity in the market looking for investment opportunities. As yields continue to soften across the yield curve, we believe that investors are in a race to lock in positions before they fall further,” said analysts at AIB-AXYS Africa in a fixed income note.
When investors seek a return that is higher than what the government is offering on a reopened bond, it offers a unit of the bond at a discount or lower than the Sh100 to compensate for lower interest rate.
On the flipside, when investors indicate a return that is lower than a bond’s interest rate due to competition, the pay premium above the Sh100 to secure the bond.
This usually happens when the government reopens a high paying bond in a period of falling interest rates, which sees investors rush to secure the paper, even if it means buying it at a price higher than its face value.
In the March 2026 bond sale, the coupon on the 20-year paper stood at 12.87 percent, but the average yield on accepted bids was 12.74 percent.
For the 25-year bond, the average yield on accepted offers stood at 12.94 percent, compared to its coupon or annual interest rate of 13.92 percent.
In the bonds market, yields and prices have an inverse relationship, where a fall in one results in an increase in the other.
The willingness by investors to offer the government a price sweetener when buying the bonds is indicative of a market where too much money has been chasing limited well-paying investment options.
The March bond raised offers worth Sh117.43 billion against a target of Sh60 billion, out of which the Central Bank of Kenya (CBK) took up Sh60.99 billion. Similarly, the February issuance was oversubscribed, attracting bids worth Sh213.74 billion versus a target of Sh50 billion, with the CBK taking up Sh100.54 million.
Previously, long term securities such as the reopened 25-year papers were the preserve of institutional investors such as pension funds, while banks and retail investors preferred shorter dated papers including Treasury bills.
The long term bonds are however paying significant premium on returns compared to Treasury bills, whose rates in last week’s auction sat between 7.57 percent and 8.64 percent, incentivising investors to disregard the duration risk that comes with the long dated bonds.
