October bond attracts few takers due to tight liquidity

By CHARLES MWANIKI
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Summary

• The Treasury registered an underwriting in its monthly bond sale for the first time since March.
• Investors offered a total of 55.47 billion shillings on the three-tranche October bond which sought 60 billion shillings, countering the recent trend of large oversubscriptions on sales of primary bonds.
• The Central Bank of Kenya took 52.05 billion shillings, leaving open the possibility of a cash sale in the coming days to close the gap on the target amount.

The Treasury subscribed to its monthly bond sale for the first time since March as liquidity in the money market tightened on the back of a sweep by the Central Bank of Kenya (CBK).

Investors offered a total of 55.47 billion shillings on the three-tranche October bond which sought 60 billion shillings, countering the recent trend of large oversubscriptions on sales of primary bonds.

The Central Bank of Kenya took 52.05 billion shillings, leaving open the possibility of a cash sale in the coming days to close the gap on the target amount.

AIB-AXYS Africa analysts had predicted the bond would be underwritten, citing the lack of liquidity in the market which saw the interbank rate soar to 6.53% from 3.33% a month ago.

“In recent weeks, liquidity in the money markets has declined due to a heavily oversubscribed infrastructure bond issue (in September), as well as aggressive open market operations by the CBK… bonds are likely to be subscribed, ”the investment bank said in a note before the bond auction.

The government reopened three past bonds for the October issue. These are two 15-year securities sold for the first time in 2013 and 2019 with maturities of 6.4 years and 12.9 years respectively, and a 25-year bond that was sold for the first time in July of this year, which is now 24.7 years old.

The 25-year-old paper was the most preferred among investors, mainly pension funds, attracting offers worth 28.7 billion shillings at an average rate of 13.9%.

The 15-year paper issued in 2013 received bids worth 23.4 billion shillings and pays a rate of 11.3%, while the mid-term reopening of 2019 received bids worth only 3.4 billion shillings with an average rate of 12.3%.

Although the government has been unable to increase its total target to 60 billion shillings, recent oversubscriptions, including the September infrastructure bond which raised 106.8 billion shillings, mean that it is still ahead of the pro-rated domestic borrowing target for the entire year.