Investors leaned towards the longer 25-year tenor paper in the first phase of the Sh80 billion May Treasury bond sale, eyeing its higher interest rate amid falling yields across government securities.
The May issuance, which opened on April 16, comprised a pair of reopened 15 and 25-year bonds seeking Sh50 billion and whose sale closed on Wednesday, and a reopened 20-year bond targeting Sh30 billion, which will be in the market until May 7.
The 15 and 25-year papers were first issued in April and October 2022, respectively, while the 20-year bond was initially sold in November 2012.
Investors offered Sh57.1 billion on the first two papers, with the Central Bank of Kenya (CBK) largely keeping to its target with an uptake of Sh50.4 billion.
The 15-year raised bids of Sh26.4 billion, and the 25-year Sh30.7 billion. The CBK took up Sh25 billion from each tranche.
The 15-year paper had a yield of 13.91 percent, compared to its coupon rate of 13.94 percent, while the 25-year returned a yield of 14.53 percent versus a coupon of 14.19 percent. This indicated that investors largely avoided raising costly bids.
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.
In seeking an additional Sh80 billion from the May sale, the government sought to cover further bond maturities of nearly Sh84 billion falling due this month—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.
