The Central Bank of Kenya (CBK) is aiming to raise Sh65 billion through the sale of government bonds. This includes reopening a two-year bond and a tap sale of five-year and 10-year bonds, with the latter two being offered on a first-come-first-served basis. The two-year bond, which is expected to raise Sh40 billion, will remain available for purchase until April 17. This bond was initially sold last year with an interest rate of 16.97 percent.
In addition, there will be an auction for the five- and 10-year bonds to raise Sh25 billion, closing on April 4 or earlier if the target amount is achieved. The government’s fiscal agent will try to acquire part of the Sh37.1 billion that went unsold in a previous auction, where investors demanded higher interest rates. Investors now have the opportunity to participate in these securities at the same returns as the recent auction, amid expectations of declining interest rates.
During the recent auction, investor bids totaled Sh59.7 billion, but the CBK only accepted Sh22.6 billion and rejected Sh37.1 billion due to higher return demands. A significant portion of the unsold bonds were from the 10-year paper, where investors bid Sh23.8 billion at an average rate of 17.75 percent against the CBK's 16 percent guidance. The five-year bond attracted bids of Sh35.8 billion at an average rate of 18.59 percent, of which only Sh17.7 billion was accepted by the CBK. Participants in the tap sale will receive adjusted returns based on accrued interest since the auction on March 25.
The CBK's recent actions reflect a move to curb rising interest rates and government debt service costs. With the National Treasury lowering its net domestic borrowing target for the upcoming financial year, there is an indication of reduced reliance on the domestic market for budget funding. Additionally, the apex bank is expected to benefit from reduced risks associated with Eurobond maturities, potentially leading to a positive outlook in its debt management strategies.