State in mart with a 3-year bond, tap sale

The government has set the tone for domestic debt market for 2024, by announcing the issuance of a new three-year bond and the reopening of a five-year bond, reflecting continued reliance on bond tap sales, a trend likely to persist as yields remain at prohibitive levels.

As per the CBK prospectus, the coupon rate for the upcoming three-year treasury bond will be market-determined, while the rate for the five-year treasury bond is fixed at 16.844 per cent.

“Central Bank of Kenya, acting in its capacity as fiscal agent for the Republic of Kenya, invites bids for the above bonds whose terms and conditions are as follows,” said CBK in its bond auction.

The reopening of the 5-year bond, coupled with the introduction of the new issuance, sets the tone for the government’s engagement in the domestic debt market, signalling strategic moves to manage its fiscal requirements while navigating the complexities of market dynamics.

Meant to generate funds for budgetary support, the issuance of the three year bond is distinguished by being a market-determined coupon bond, introducing an element of flexibility to respond to prevailing market conditions.

The 5-year reopening also remains a prominent fixture in the market, featuring a coupon rate of 16.84 per cent. The reopening is part of the government’s ongoing effort to tap into existing instruments, catering to investor demand for longer-term securities.

Currently the government is in the market for Sh35 billion, a minimum investment threshold of Sh50,000, and a sale period extending until January 10th, 2024.

These specifications indicate the government’s anticipation of strong investor interest, continuing the trend observed throughout 2023, where the 3-year bond played a pivotal role as the ‘sweet spot’ in response to substantial demand on the short end. With yields posing challenges, investors are likely to closely monitor the government’s debt market activities throughout the year.

In the Treasury bond tap sale held on December 5th, 2023, the 6.5-year infrastructure bonds garnered bids amounting to Sh47.2 billion, significantly surpassing the advertised amount of Sh25 billion. This resulted in an oversubscription rate of 188.8 per cent.