Treasury raises Ksh 26 Billion in two-part bond sale

The National Treasury raised Ksh 26 billion on Wednesday from its two September bonds for budgetary support against a target of Ksh 30 billion.

The government had issued new 2-year bond (FXD 1/2017/2) and re-opened a 10-year bond (FXD 1/2017/10), with effective tenors of 2.0 years and 9.9 years, respectively whose bidding closed on Tuesday.

Analysts had noted that the 2-year  bond was ‘quite bullish and lukewarm on the 10-year paper’.
From the Central Bank results, the  2-year bond and 10 year paper  had a yield  of 11.619 percent and 13.072 percent respectively compared to 12.509 percent and 3.060 percent at the last auction respectively.

Thus, the government sold Ksh 20 Billion worth of the 2-year bonds against a target of Ksh 34 Billion and Ksh 6 Billion of the 10- Year bonds against total bids of Ksh 9 Billion that had been bidded.

Read: Kenya’s 2017-18 budget worsening in fiscal deficit – Analysts

Genghis Capital Analysts expectations remained, “The same for the FXD1/2017/5 at 11.60 percent – 11.80 percent and 13.00 percent-13.15 percent for the 10-year bond.”

“The CBK sat out of the Open market operations (OMO) – the buying and selling of government securities in the open market-  on Monday sighting a square market, we feel it’s also a strategy to deluge the market with liquidity to instill discipline in Tuesday’s auction,”they had noted.

After the results, Genghis, “We expect a TAP sale on this paper (2-year bonds) ) as Treasury seeks to mop up the KES 14Bn left on the table.”

However, for Cytonn Investments, their view, the government is behind on its domestic borrowing target for the current fiscal year, having borrowed Kshs 17.6 bn against a target of Kshs 67.2 bn (assuming a pro-rated borrowing target throughout the financial year of Kshs 317.7 bn budgeted for the full financial year).

“Due to this, we expect investors to bid slightly above the secondary market yields, which are at 11.6 percent and 13.0 percent for the 2.0-year and 9.9-year bonds, respectively, and we would therefore bid at a range of between 11.6percent – 11.9 percent for the 2.0-year bond, and 13.0 percent – 13.3 percent for the 9.9-year bond.”

Wednesday’s auction for the 10-year bonds was  its fourth re-opening which so far has ticked Ksh17.68Bn. “We view the resolve by the regulator by maintaining this particular paper in the auction is to lengthen average duration of issued securities,” according to Genghis Capital.