State focus now turns to tap sales for funds
In a strategic move aimed at mitigating the risk of failed bond auctions, the government has decided to scale down its bond issues to tap sales of Sh20 billion and below.
Government’s decision comes on the heels of a recent unsuccessful auction for a 15-year bond, signalling the government’s aversion to potential market setbacks.
The failed auction of the 15-year bond, which took place last week, prompted the government to reassess its approach to issuing bonds. With a target of raising funds through bond sales, the auction fell short of expectations, raising concerns about the potential risks associated with failed auctions.
As a result, the government has now shifted its focus to tap sales for bond issues amounting to Sh20 billion and below.
“Central Bank of Kenya is pleased to offer eligible investors an opportunity to participate in a Tap Sale of the above Fixed coupon Treasury Bond whose details are as in the prospectus issued value date 15/05/2023,” the Treasury said in its call for investors.
Tap sales involve offering additional units of an existing bond issue to investors, providing them with an opportunity to purchase more bonds and the government with a chance to raise additional funds.
Furthermore, the government has announced a second tap sale for FXD1/2023/03, building on the success of the previous tap sale.
The previous tap sale managed to raise Sh10.6 billion against a targeted amount of Sh10.0 billion, indicating a strong investor appetite for the government’s bonds.
The decision to pursue tap sales instead of full-scale bond auctions speaks to the government’s cautious approach in confronting the risks associated with failed auctions.
By offering additional units of existing bond issues, the government can tap into the existing demand from investors without having to rely solely on the outcome of a single auction.
Market analysts have expressed their support for the government’s move, highlighting the importance of minimizing potential market disruptions.
They believe that by reducing the size of bond issues, the government can mitigate the risk of failed auctions, which can have adverse effects on market confidence and interest rates.
The government’s decision is also seen as a prudent step to maintain stability in the bond market and ensure a steady flow of funds to finance various development projects and government expenditure.
It demonstrates a commitment to managing risks and adapting to changing market dynamics.
With the second tap sale scheduled for FXD1/2023/03, the government aims to capitalize on the positive investor sentiment and meet its fundraising targets.
By opting for tap sales and building on previous successes, the government aims to mitigate risks, ensure market stability, and maintain investor confidence in its bond offerings.