Treasury seeks redemption in December secondary bond sale, targets Ksh.22B

Treasury has sought to save face through a secondary December bond offer following disappointing uptake of a primary bond offer earlier this month.

The exchequer is now seeking Ksh.22 billion in new borrowing from the domestic market for the remainder of the month to December 23.

The secondary issue has been triggered by a poor performance which saw Treasury raise a mere Ksh.18.3 billion from two re-opened bonds in contrast to a target of Ksh.40 billion.

Investor subscriptions to the two issues were hit by tightening liquidity on the back of shilling mop-up activity by the Central Bank of Kenya (CBK) which stepped in to smoothen recent volatility in the valuation of the shilling by trimming the volume of money in circulation.

Last week for instance, the reserve bank mopped Ksh.35.7 billion from the market between Monday and Thursday.

This tightened liquidity in the interbank market with the interbank lending rate- the rate of lending between banks increasing to 3.9 from 3.6 per cent.

Subsequently, December’s primary bond offer performed dismally with investors putting in bids totaling a mere Ksh.24.3 billion.

In spite of the investor drought, the CBK has managed to keep the return demanded by investors on the low and largely within pre-advertised coupon rates.

Despite the sour turn in investor appetites, the National Treasury has remained ahead of its local domestic borrowing program in the present 2020/21 financial year supported in large part by risk aversion by investors who continue to favour buying government securities over other investment classes.

Local commercial banks have for instance significantly grown their holding of government debt over the past nine months as they slowdown on lending to customers.

The National Treasury is expected to tap a total of Ksh.600 billion from the local debt market by the end of June 2021.