Serrari Group

The Central Bank of Kenya (CBK) has initiated a strategic move to secure an additional Sh15 billion by reopening two September bonds. This decision comes as the fiscal agent for the government endeavors to maintain control over investor expectations and manage yields on government paper.

In this offering, CBK is reopening two bonds with varying tenors, including a two-year and a ten-year paper, with tenors of 1.9 and 2.9 years, respectively. The offering is set to run until Thursday or until the targeted amount is met.

Despite the relatively short tenors, these bonds present attractive average yields. The two-year paper offers an average yield of 17.4537 percent, while the ten-year paper promises 17.9266 percent. These returns have remained constant since the bonds were initially reopened earlier this month.

In the previous round, CBK accepted bids totaling Sh21.6 billion, out of the Sh34 billion initially offered by investors. This deliberate decision to accept a lower amount was interpreted as a strategic move to manage yields on government securities by rejecting aggressive and expensive investor bids.

Analysts at AIB-AYS Africa commented, “We attribute the low acceptance rate to the government’s effort to control further yield increase with a tap sale expected.” This reflects CBK’s intention to maintain stability in the bond market while preserving investor confidence.

Now, the focus of CBK is on capturing the nearly Sh12.5 billion remaining from the previous bond sale. Simultaneously, it aims to secure investors at the realized average yields, thereby reinforcing its position in the financial market.

CBK has been actively countering the upward pressure on interest rates associated with government bonds. In light of investor expectations of higher rates, the yield curve has experienced an inversion, leading to decreased demand for medium and long-term securities. Consequently, interest rates on short-term debt and T-Bills have surged as investors seek shorter-term securities, anticipating higher returns.

CBK’s decision to reopen the bond market serves as a strategic maneuver to maintain interest rate stability and demonstrate its commitment to navigating the complexities of the current financial landscape.

The market’s response to this latest move by the Central Bank of Kenya will be closely monitored by investors and analysts as CBK aims to secure Sh15 billion through the September bond tap sale.

Photo Source: Google

By: Montel Kamau
Serrari Financial Analyst
25th September, 2023

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