Investors Preferred Longer Dated Bonds In April, Leading To An Oversubscription In The Niche

During the month, the government released the auction results for the April bond issues; FXD1/2022/03 and FXD1/2022/15, which recorded a total undersubscription of 95.1 percent.

The undersubscription was partly attributable to the tightened liquidity in the money market during the period of issue.

Investors preferred the longer dated bond, FXD1/2022/15, which recorded an oversubscription of 108.5 percent, in anticipation of a higher yield.

The fifteen-year bond’s weighted average accepted yield and coupon rate was 13.9 percent.

The government was keen on maintaining low rates and thus accepted only 60.8 billion shillings of the 66.6 billion shillings worth of bids received, translating to an acceptance rate of 91.3 percent on aggregate.

For the month of May 2022, the government issued a new ten-year and re-opened a twenty-five year bond, FXD1/2022/10 and FXD1/2021/25, with tenors to maturity of 10.0 years and 24.1 years, respectively, in a bid to raise 60.0 billion shillings for budgetary support.

The period of sale for the issue runs from 28th April 2022 to 10th May 2022. The coupon rate for FXD1/2022/10 is market determined while that of FXD1/2021/25 is 13.9 percent.

“We expect investors to prefer the longer dated paper, FXD1/2021/25, in search of higher yields,” said analysts from Cytonn Investments.

FXD1/2021/25 is currently trading in the secondary market at a yield of 13.9%, and as such, “our recommended bidding range is 13.7-14.1 percent for FXD1/2021/25 and 13.1-13.5 percent for FXD1/2022/10, the range at which bonds of a similar tenor are trading at.”