CBK seeks Sh15b from bond tap sale for budget support

The government’s re-entry into the domestic debt market, seeking a Sh15 billion tap sale for budgetary support, underscores Kenya’s increasing reliance on short-term debt instruments to address pressing financial obligations.

Tap sales, a method enabling borrowers to sell additional bonds from prior issues, play a pivotal role in securing short-term capital.

This strategic pivot towards short-term debt instruments by the National Treasury highlights the need for effective fiscal management amid the current economic landscape.

Economic growth

“The Central Bank of Kenya (CBK) is excited to offer investors the opportunity to participate in the Tap Sale of Treasury Bond Issue No. FXD1/2024/010. This bond, dated 13/05/2024, is part of our commitment to fostering economic growth and stability,” according to the CBK director of Markets, emphasising the dedication to economic resilience.

“Bids shall be priced at the average rate of the accepted bids for the Treasury Bond auction value dated 06/05/2024 and adjusted for accrued interest.” Last week, the Treasury sought Sh25 billion from the domestic market through the reopening of a 10-year bond. Leveraging this bond issuance, the CBK aimed to reduce interest rates and attract investors to longer-term bonds.

The overwhelming response, with bids totalling Sh37.2 billion against the Sh25 billion target, necessitated a tap sale to meet the excess demand, aligning with efforts to balance the debt portfolio and address budgetary needs.

This strategy, anticipated to persist as yields remain high, contrasts with the 2023 market landscape, where a 10-year bond took precedence as the primary new issuance.

Moreover, the issuance of a three-year bond, distinguished by its market-determined coupon, reflects the government’s adaptability to market dynamics.

A recent initiative in this vein was the debt swap plan, where the Treasury aimed to exchange Sh87.8 billion of short-term debt for longer-term obligations. The manoeuvre, aiming for short-term debt alongside longer-term obligations, signifies a bid for greater fiscal flexibility amidst fiscal constraints.

However, the prominence of 5-year tap sales persists, signalling the government’s commitment to tapping existing instruments to meet investor demand for longer-term securities.