Treasury takes up Sh78bn from 11-year projects bond

Investors rallied for the 11-year infrastructure bond whose sale concluded this week, bidding Sh101.5 billion against the target of Sh70 billion to give the Treasury a big boost in achieving its domestic borrowing target for the current fiscal year.

The Central Bank of Kenya (CBK), the government’s fiscal agent, took up Sh78.64 billion from the bids offered by investors, at an average rate of 11.302 percent.

Analysts said the uptake of the bond met market expectations due to its tax free status and poor performance of equities.

“The positive uptake was broadly expected mainly because tax-free infrastructure bonds is a no-brainer incentive to investors. Secondly, the liquid environment during the sale period supported risk-on sentiment to the primary paper,” said Genghis Capital head of research Churchill Ogutu.

The government is seeking to finance development projects in the current financial year through the longer dated bonds that have attracted demand due to higher yields. Despite this, the CBK rejected Sh22.83 billion from the auction as the government remains ahead of its domestic borrowing target for the fiscal year.

This has been attributed to aggressive borrowing from the domestic market having recently carried out a tap sale on a Sh40 billion, 20-year Treasury bond earlier this month that attracted bids worth Sh40.26 billion, and another Sh60 billion bond in three tenors issued in July that attracted bids worth Sh181.8 billion. The government took up Sh41 billion and Sh80.9 billion as new borrowing from the bonds respectively.

“As such, there was not much pressure to pick up all the bids received. Coupled with the 147 percent performance, this gave the fiscal agent latitude to prefer a lower yield regime as seen in the 0.1 percentage point differential in the average yield of bids received and bids accepted,” said Mr Ogutu.

The CBK has also found the bonds and Treasury bill issues a useful tool in mopping up the high liquidity in the money market, in order to maintain monetary policies and support lending between institutions and businesses.