Treasury raises Ksh.120 billion from local borrowing in August

The National Treasury continued to enjoy the abundance of liquidity in the market as it rounded off the mobilisation of Ksh.119.6 billion from the domestic market on Wednesday.

The Central Bank of Kenya (CBK) accepted investor bids worth Ksh.78.6 billion following the auction of its largest infrastructure bond on offer which had seen investor bids worth Ksh.101.5 billion.

Added to Ksh.41 billion raised through a re-opened bond sale earlier this month, the CBK and Treasury continued to find easy pickings as investor favour investments in government securities over riskier equities and commercial debt.

The uncertain investments environment is expected to continue supporting tidy mop-ups by government from local borrowing as the National Treasury targets to raise a total of Ksh.486.2 billion from the domestic market by the end of June 2021.

The normalization of high liquidity is however expected to lift interest rates paid out by government to investors as the yield curve sees an uptick.

The weighted average interest rates for the accepted bids in Wednesday’s auction for instance stood at 11.4 percent above the advertised coupon rate of 10.9 percent accompanying the bond sale.

The CBK had previously tapped Ksh.41 billion from the tap sale in early August at weighted average rates of 12.93 percent below the advertised coupon of 13.2 percent.

CBK is however expected to remain vigilant in its rejection of expensive bids forcing investors to to put in conservative demands on returns.

“Since CBK reduced the cash reserve ratio (CRR) from 5.25 percent to 4.25 percent, the money market has been awash with liquidity. This money has mainly been channelled to the fixed income markets as investors remain risk averse. Consequently, the T-bill and bond auctions have been oversubscribed, enabling CBK to reject aggressive bids and push interest rates lower,” analysts at AIB-AXYS Africa said in a fixed income note.

The Ksh.78.6 billion mop up has anchored the Kenyan shilling rally to Ksh.108.15 against the US dollar at Thursday’s opening trading session from its historical low at Wednesday’s close.