Kenya seeks KES60B from re-opened fixed coupon treasury bonds

Kenya seeks KES60B from re-opened fixed coupon treasury bonds

The Central Bank of Kenya (CBK) is seeking to raise KES60 billion through the re-opening of fixed coupon treasury bonds, according to recent announcements. This move comes amidst a significant shift in investor preferences from short-term Treasury bills to longer-dated bonds, driven by substantial yield gaps and the country's fiscal deficit.

The July auctions revealed a record 6-percentage-point yield gap between the 91-day T-bill (8.14 percent) and a re-opened 25-year bond (14.34 percent) [1]. This gap underscores the increasing appeal of longer-term bonds, which offer higher real returns. In the past three weekly T-bill sales, the CBK raised a combined Sh22.75 billion, Sh21.76 billion, and Sh14.48 billion against a target of Sh24 billion. Conversely, bond issues in June and July, each seeking Sh50 billion, were heavily oversubscribed, attracting bids of Sh101.4 billion and Sh76.9 billion, and accepting Sh71.6 billion and Sh66.7 billion respectively [1].

The rush to lock in double-digit coupons reflects investor demand for higher real returns and the Treasury's strategy to stretch maturities to manage its Sh923 billion fiscal deficit for 2025/26. Analysts attribute the widening spread to several factors. First, a series of CBK rate cuts to 9.75 percent has anchored short-end coupons, diminishing the appeal of T-bills. Second, the substantial budget hole and domestic borrowing needs have prompted the Treasury to sweeten long maturities to flatten its redemption schedule. Third, investors, flush with liquidity from recent maturities, see an opportunity to lock in double-digit income before the easing cycle matures, despite the associated balance sheet risks [1].

In response, the CBK has accepted above-target amounts and offered price discounts on 20- and 25-year reopenings, signaling a reduced sensitivity to investor pricing as it prioritizes debt-service smoothing over the next fiscal year [1].

References:
[1] https://www.linkedin.com/posts/fintech-association-of-kenya_investors-are-pivoting-sharply-from-short-term-activity-7350711271601618944-CoMR