Investor appetite for government securities remained strong after the Central Bank of Kenya (CBK) received bids worth Ksh 22.58 billion in its latest Treasury bond switch auction, well above the Ksh 15 billion it had targeted.
The results released on Monday showed that the auction attracted bids equivalent to 150.55 per cent of the amount on offer. CBK eventually accepted bids worth Ksh22.51 billion, including Ksh 22.42 billion in competitive bids and Ksh 93 million in non-competitive bids.
The strong turnout shows continued interest in government securities at a time when investors are closely watching returns on Treasury bills and bonds. It also allows the government to shift part of its domestic debt away from securities that are approaching maturity.
CBK said the results were for the Ten-Year Treasury Bond Switch Auction, issue FXD4/2019/010.
Investors move into 2029 bond
The auction allowed eligible investors to exchange some or all of their holdings in selected Treasury bills and an older Treasury bond for the FXD4/2019/010 bond.
The destination bond carries a coupon rate of 12.28 per cent and matures on November 12, 2029. It had about 3.23 years remaining to maturity at the time of the auction.
“Participation in the auction is voluntary, and investors may opt to switch part of the holding (face value) in the bond,” CBK said in its prospectus.
The securities eligible for the switch included Treasury bills issued under 2685/091, 2646/182 and 2574/364, together with Treasury bond FXD1/2021/015.
The three Treasury bills were approaching maturity, while the FXD1/2021/015 bond is due in September 2027. The switch gives investors an option to move their money into a security with a later maturity instead of waiting for their existing holdings to mature.
CBK accepts more than Ksh 22 billion
The market weighted average rate in the auction stood at 11.2395 per cent, while the weighted average rate for accepted bids was 11.2391 per cent.
The bid-to-cover ratio was 1.00, reflecting the level of bids accepted against the amount allocated.
The results come as the government continues to use domestic debt management operations to spread out repayment obligations and reduce pressure from large amounts of debt falling due within a short period.
A bond switch does not work like a fresh cash borrowing in the usual sense. Instead, investors exchange eligible existing government securities for another government bond, allowing the Treasury to adjust when its obligations will need to be repaid.
The latest operation was voluntary, meaning eligible investors were free to decide whether to participate and how much of their holdings to switch.
The switch auction was conducted on August 24, with settlement scheduled for August 26.
With settlement now due on August 26, attention will shift to how the latest switch affects the government’s near-term repayment schedule and investor demand for upcoming Treasury bond issues.
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