Last week, the Kenyan Government issued a new 15-year Treasury bond (FXD 1/2018/15) with the coupon set at 12.7 percent in a bid to raise 40.0 billion shillings for budgetary support.
The overall subscription rate for the issue came in at 50.5 percent with the market-weighted average bid rate coming in at 13.2 percent 10 bps above the average acceptance rate of 13.1 percent and in line with our expectations of 13.0 – 13.3 percent.
The government accepted 12.9 billion shillings out of the 20.2 billion shillings worth of bids received, translating to an acceptance rate of 63.6 percent.
The auction’s subscription was low compared to the year’s average of 101.5 percent perhaps due to a decline in liquidity during the week as indicated by the increase in the average interbank rate to 5.7 percent from 4.4 percent recorded the previous week.
The government is set to embark on a new borrowing cycle soon, with the budget for the fiscal year 2018/19 scheduled for release in June 2018.
Estimates from the Budget Books by the National Treasury point to an expansionary budget, with the estimated increase in development expenditure being higher than that of recurrent expenditure.
“We expected a repeal or amendment of the law through a Bill by the Treasury, but they released the draft Financial Markets Conduct Bill, which does not point to a repeal or revision of the cap,” said analysts from Cytonn.
Liquidity levels declined in the money market as indicated by the increase in the average interbank rate to 5.7 percent from 4.4 percent recorded the previous week, and the reduction in the average volumes traded in the interbank market by 38.3 percent to 7.9 billion shillings from 12.7 billion shillings the previous week. With the declining liquidity, small and medium banks traded at higher rates during the week, causing the average interbank rate to rise.