Attractive Pricing Lures Investors to Shorter But Long-Dated T-Bonds

The Government’s fiscal agent, Central Bank of Kenya (CBK), received bids worth KSh 97.3 billion, out of the KSh 40 billion worth of 20 year and 25 year Treasury bonds offered at this Wednesday’s auction. The CBK raised KSh 61.4 billion from the oversubscribed bonds.

This is after a dampened 30-year bond sale, an indication of investor preference for shorter, long-dated maturity bonds.

According to bond dealers, investors shied from the 30 year Treasury bonds due to its unattractive pricing. The reopened 30-year Treasury bond sale had a coupon rate of 12.000% compared to 13.2000% and 14.1880% for the 20 year and 25-year treasury bond.

It is this difference in yields that could have made the two shorter maturity treasury bonds more appealing. Long-term bonds with lower yields also become unattractive with the risk that interest rates might rise in the future, lowering their value.

CBK raised only KSh 2.4 billion out of the KSh 20 billion re-opened 30-year Treasury bonds Auction. In this sale, the fiscal agent received bids worth KSh 8.1 billion out of the KSh 20 billion offered, an under subscription of 40.35%. The due date for this bond is 21^st January 2041 while maturities for the 20 & 25-year T-bonds are 01/03/2038 and 23/09/2047 respectively.

In September, the CBK re-opened the sale of these three Treasury bonds, seeking to raise KSh 60 billion for budgetary support. It has thus surpassed its target.

In August, CBK accepted KSh 179.77 billion in a tap sale of two infrastructure bonds, far exceeding its initial KSh 50 billion target. Earlier in the month, CBK reopened a sale of infrastructure bonds with investors bidding KSh 323.43 billion against an offer of KSh 90 billion on 18 August. CBK accepted KSh 95.01 billion.

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