How Are Government Bonds Performing as September Takes Off?

For the month of August, the Kenyan government issued a 10-year bond (FXD 3/2019/10) and re-opened a 20-year bond (FXD 1/2019/20) to raise a total of 50.0 billion shillings for budgetary support.

The accepted yields for the issue came in at 11.6 and 12.7 percent for the (FXD 3/2019/10) and (FXD 1/2019/20), respectively, “in line with our expectations as highlighted in last week’s bidding ranges of 11.5 – 11.7 percent and 12.6 – 12.8 percent, for the (FXD 3/2019/10) and (FXD 1/2019/20.”

The issue was oversubscribed with the subscription rate at 134.9 percent having received 67.4 billion worth of bids against the advertised amount of 50.0 billion shillings.

The market biased towards the 10-year bond that had bids amounting to 52.8 billion shillings mainly driven by the perception that risks may not be adequately priced on the longer end of the yield curve, which is relatively flat due to a narrowing spread between the short-term and long-term interest rates.

For the month of September, the Kenyan Government is set to re-open two 15-year bonds, (FXD 1/2018/15) and (FXD 2/2019/15) to raise a total of 50.0 billion for budgetary support.

The government has issued the two medium-tenor bonds, in a bid to plug in the budget deficit, while at the same time trying to reduce the maturity risk profile of government debt.

“We expect the bonds to be oversubscribed as per recent trends, mainly driven by the perception that risks may not be adequately priced on the longer end of the yield curve, which is relatively flat due to saturation of long-term bonds, which has resulted in a lot of interest in the short-term and medium-term bonds,” said Cytonn.

In the market, bonds with similar tenors are currently trading at yields of 11.9 and 12.0 percent respectively.

“We expect bids for the (FXD 1/2018/15) and (FXD 2/2019/15) to come in at 11.9 – 12.1 percent and 12.0 – 12.2 percent respectively,” said Cytonn.

In the money markets, 3-month bank placements remained unchanged, ending the week at 8.6 percent (based on what we have been offered by various banks).

The 91-day T-bill was also unchanged, ending the week at 6.4 percent while the average of Top 5 Money Market Funds came in at 10.0 percent compared to 9.5 percent last week, with the Cytonn Money Market Fund closing the week at 11.0 percent, unchanged from last week.