CBK Cancels Ksh30 Billion Bond Meant for Budgetary Support

The Central Bank of Kenya (CBK) has cancelled the auction of its newly re-opened, 15-year Treasury 30 billion shillings meant for the 2016/2017 budgetary support. The CBK has not provided details for the cancellation.

Initially, the bond was to have a 13.500 percent coupon. It will take bids until January 24 and auction the bond on January 25 whose maturity is 5 years.

CBK can cancel Treasury bill auctions when investors fail to bid or when they demand yields that the government considers too high.

In the last two auctions, the government rejected expensive bids from investors, given that they are ahead of their domestic borrowing target and hence under no pressure to borrow expensively.

“Given that a 5-year bond is currently trading at a yield of 13.4 per cent in the secondary market, and there is skewed liquidity currently being witnessed in the market, we expect investors to bid for the bond at yields above the secondary market yield, at a bidding range of 13.6 percent – 14.5 percent,” according to Cytonn Investments.

The bids were to be taken up until Jan. 24 with the bond auction happening on Jan. 25.

The government has only borrowed Kshs 45.8 bn from the foreign market against its foreign borrowing target of Kshs 462.3 bn, and the Kenya Revenue Authority (KRA) having already missed its first quarter of 2016/17 fiscal year revenue collection target by 18.4 percent.

“This creates uncertainty in the interest rate environment as the government might have to plug in the deficit likely to arise from the lag in revenue collection and foreign borrowing from the domestic market, a move which may exert upward pressure on interest rates,” adds the Analysts.

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