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State eyes Sh60bn in second bond sale in September
The State carries out the bulk of its borrowing from the domestic market via Treasury bonds, with a smaller share coming through Treasury bills and overdrafts from commercial banks and the CBK.
The Central Bank of Kenya (CBK) is back in the market with a Sh60 billion Treasury bond sale as the government keeps up its rapid rate of domestic borrowing early in the fiscal year.
In the sale, the CBK has reopened a 20-year bond from 2019 at 12.87 percent and a 30-year paper first issued in April 2026 at a rate of 12.5 percent.
This is the second Treasury bond issuance this month, after the earlier auction of reopened 15 and 30-year papers on September 2, which netted Sh47.7 billion against a target of Sh60 billion.
Overall, the State had set a target of Sh120 billion from the September bond issuances, looking to add to the Sh406 billion in net domestic borrowing it achieved in July and August.
The full year borrowing target was set at Sh987.4 billion in the June Budget Statement, meaning that the government is approaching the 50 percent net mark in just under three months.
There are no bond maturities in September, meaning that all the cash raised from the sales should ideally go towards the net borrowing column, unless the government utilises some of it to settle the maturing Sh213 billion Treasury bills due in the coming weeks.
The State carries out the bulk of its borrowing from the domestic market via Treasury bonds, with a smaller share coming through Treasury bills and overdrafts from commercial banks and the CBK.
There has been some upward pressure on rates however as investors take into account the State’s previous record of revising its borrowing targets upwards within a fiscal year due to a widening budget deficit.
In the first bond sale of this month, investors offered the CBK Sh68 billion against the target of Sh60 billion, but demanded a return of 13.7 percent on the 30-year bond against its coupon of 12 percent, and 12.82 percent on the 15-year paper compared to its fixed interest rate of 12.34 percent.
This forced the CBK to offer a price discount of Sh8.65 per bond unit of Sh100 on the 30-year bond in order to cover for the gap between what the investors were asking for and the bond’s actual rate of return.
Ideally, a unit of a bond is priced at Sh100, with investors getting a return from the paper’s fixed interest rate. However, when a re-opened bond pays a lower return compared to what the market is demanding, investors are given a discount on the Sh100 in order to entice them to lend to the government.
Alternatively, when investors indicate they are willing to take a return that is lower than a bond’s coupon rate, they end up paying a price premium to the CBK in order to secure the bond.
