A 10 year Treasury bond has been reopened by the National Treasury three months to the end of the fiscal year to curb the deficit in the budget.
According to the Central Bank of Kenya, the April bond issue will be reopening two bonds of 1.4 and 1.98 years.
The bonds, which opened Monday, are intended for budgetary support with bidding expected to close next Tuesday. The auction will take place the following day.
Cytonn Investments in a weekly note said that given that the government only has three months to the close of the current fiscal year and the fact that borrowing from the foreign market is a much longer process than borrowing from the domestic market, the government is likely to use the latter to plug in the deficit that is likely to arise.
Cytonn added that this will create uncertainty in the interest rate environment as this is a move that may exert upward pressure on interest rates, and result in longer term papers not offering investors the best returns (through devaluation) on a risk-adjusted basis.
According to Cytonn Investments, it is prudent for investors to be biased towards short-term fixed-income instruments.
The 2017/2018 fiscal deficit, which is starting in July, is about Sh523 billion and the Treasury has said this will be equally funded through domestic and external borrowing.
In addition, the Treasury plans to issue Kenya’s first Islamic Bond (Sukuk) in the coming fiscal year as an alternative source of financing its development projects.