Investors offer a record Sh181bn in July bond sale

Investors bid a record Sh181.8 billion in this month’s Treasury bond sale, indicating a market flush with liquidity amid a dearth of investment options.

The Central Bank of Kenya (CBK) had taken the rare step of offering the bond in three tenors of five, 10 and 15 years—it normally floats single or dual tenor papers— which meant that all the different classes of investors were catered for. The bond targeted Sh60 billion.

The CBK, which is the government’s fiscal agent, said it took up Sh80.9 billion out of the funds offered, leaving Sh100 billion on the table. The higher than targeted amount taken up is however 16.4 percent of the government’s net domestic borrowing target of Sh494 billion for the current fiscal year, pushing it ahead of target in the early days of the borrowing calendar.

The high appetite for bonds is also driven by negative or low returns in other asset classes such as equities and property.

“With our expectations of dip in ordinary revenue collection on the backdrop of Covid-19 fallout, the triple tranche primary bond issuance is aimed at ramping the nascent fiscal year’s revenue,” said Genghis Capital head of research Churchill Ogutu in a note on the bond.

By offering the paper in three tranches, the Treasury catered for banks, which prefer short dated papers such as the five year, and pension funds which prefer longer dated bonds. The bids on the five-year amounted to Sh65.3 billion, the 10-year got bids worth Sh55.5 billion while the 15-year paper saw Sh60.9 billion bids.

Although the highly liquid money market has contributed to the record amount in bids at the bond sale, there are concerns that banks have been preferring to lend to the government instead of lending to the private sector.

Businesses have been hit hard by the Covid-19 containment measures, and many personal loan borrowers have also suffered job losses.

This has raised their risk profile, with analysts saying that lenders keen on keeping a lid on non-performing loans would then be inclined to go for the low risk government securities instead.