The Treasury has opened a three-day tap sale of one of the three bonds it sold earlier this month, seeking an additional Sh10 billion from the market.
For the tap sale, the Central Bank of Kenya (CBK)—the government’s fiscal agent—has picked the reopened 15-year bond whose debut in the market was in February 2020, and which raised Sh20.88 billion in last week’s auction from offers of Sh20.89 billion.
The April bond issuance also included a 25-year bond first sold in October 2022, and another 15-year paper whose initial sale was done in April 2022. The issuance raised Sh71.4 billion overall, with the 25-year paper contributing the most at Sh32.5 billion.
In returning to the market with a tap sale, the CBK is eyeing the relatively liquid market, which saw both the Treasury bond and Treasury bills auctions oversubscribed.
It is also eyeing the growing investor appetite for longer-dated bonds amid an expectation that interest rates will come down in the short term. The tap sale, which opened yesterday, will close tomorrow, as per the prospectus published by the CBK.
The tap sale will also help the CBK cover a larger share of this month’s maturities of Sh90 billion, having seen the Sh71.4 billion it raised in the auction last week roll over 79 percent of April’s repayments.
Last month, CBK disclosures showed that the government was ahead in its domestic borrowing target of about Sh583 billion with net collections of Sh653 billion, meaning that the focus in this month’s bond sale was on raising enough to refinance the heavy maturities.
In last week’s bond sale, the 2020 bond stood out as the tenor with the biggest price discount to investors at Sh4.89 per bond unit of Sh100, given that its effective yield of 13.66 percent was higher than its coupon rate of 12.75 percent.
The 25-year bond had a yield of 14.23 percent on accepted bids, versus a coupon (or actual interest rate) of 14.18 percent, while the 2022 fifteen-year bond returned a yield of 13.82 percent versus a coupon of 13.94 percent.
The rate of return earned by investors does not have to match the coupons since the CBK offers discounts when a lower-yielding security is reopened in a higher interest rate environment.
The discounts serve to lift the rate of return since the interest is paid on the face value of a bond, and an investor will also be paid the full principal at redemption despite paying a lesser amount when they purchased the paper.
On the other hand, when investors are competing to get their hands on a bond whose interest rate is higher than the prevailing yield rate for its duration, they can opt to pay a premium on price to secure the paper.
