The Central Bank of Kenya (CBK) has returned to the domestic debt market in search of Ksh60 billion to help finance government spending in September.
The move comes barely a week after the institution closed two record-breaking infrastructure bond auctions that pulled in more than Ksh 274 billion.
According to the CBK, the latest issuance will involve the reopening of three fixed-coupon Treasury bonds with maturities of 20, 25 and 30 years.
The coupon rates are set at 13.2 per cent, 14.18 per cent and 12 per cent respectively. The papers will mature between 2038 and 2047, while the 30-year bond is expected to take just over 15 years to fully mature.
The regulator has set September 17 as the auction date for the 20 and 25-year bonds, which is also the deadline for investors to submit bids. The 30-year bond will be auctioned earlier on September 3.
Secondary trading for the longer-dated paper is scheduled to begin on September 22, while the other two will start changing hands from September 8.
In its notice, the CBK reminded investors that the minimum amount for non-competitive bids is Ksh 50,000, with a cap of Ksh 50 million.
Larger investors participating through competitive bids will need to put down at least Ksh 2 million per CDS account for each instrument. The bank also indicated it will re-discount the bonds, but only as a last resort, at three percentage points above the market yield or coupon rate.
The government’s return to the market follows oversubscribed auctions in August, during which investors demonstrated overwhelming demand. At the reopening of 15 and 19-year infrastructure bonds, the CBK received offers worth Ksh 323 billion against a Ksh 90 billion target, eventually taking up Ksh 95 billion.
A subsequent tap sale on August 20 also drew massive interest, attracting bids worth Ksh 207 billion for a Ksh 50 billion offer, with the bank settling on Ksh 179.8 billion.
Analysts, however, caution that September’s sale could prove more challenging. Investors are expected to demand higher returns given the volume of recent borrowing and the rising cost of credit in the market.
The Central Bank of Kenya itself acknowledged the prevailing pressure in the market, making it clear that the government’s attempt to raise funds through Treasury bonds will face significant hurdles.
“It will not be a walk in the park for Treasury with investors expected to ask for big discounts on these papers.”
Even so, Treasury bonds continue to appeal to investors seeking long-term, stable returns. Unlike infrastructure bonds that are tax-exempt, these new papers will attract withholding tax, but they still offer the security of government backing and regular semi-annual interest payments.
Pension funds, banks and insurance firms are among those likely to show interest, given the sustained appetite witnessed in the August auctions.
The strong demand for government securities highlights how much the state relies on the local market to bridge its budget deficit.
With borrowing needs still high, the Treasury faces the delicate task of attracting investors while keeping yields sustainable for the country’s long-term fiscal health.
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