Treasury floats Sh87b auction for short-term liabilities

Thursday, November 24th, 2022 08:08 | By
Kenya borrowed Ksh105b in four months, shows report
The National Treasury building in Nairobi. PD/file

The Central Bank of Kenya has floated a Sh87 billion switch auction on behalf of the National Treasury to help relieve the government of its short-term liabilities.

The switch auctions offer existing T-bills and two-year bondholders the opportunity to move their asset’s maturity out to a six-year bond at rates determined by investors through the open auction mechanism.

Switch actions are used to extend maturities of short term papers, to longterm papers, in a bid to ease pressure on the government, especially due to impending redemptions.

“CBK, acting in its capacity as fiscal agent for the Republic of Kenya, invites bids for the infrastructure bond via switch auction that is offered to investors with holdings in T-bills issue Nos. 2494/91, 2454/182, 2380/364 and T-bond issue No. FXD1/2021/2,” said CBK.

The bond will target both to raise more funds for the government under infrastructure bonds and also extend maturities and help restructure the yield curve. “The bond will be tax free as is the case for infrastructure bonds as provided for under the Income Tax Act,” CBK said.

Bonds and more bonds

The new administration has issued a string of bonds in the last two weeks starting with a Sh60 billion that eventually collected Sh75 billion. Then there was a tap sale for Sh5billion, which netted Sh19 billion and another reopening this week that sought Sh40 billion.

The switch auction shows how high the appetite for cash is at the National Treasury. In a bid to encourage banks to participate in the auction, CBK said the bond will qualify or count as part of banks’ liquidity ratio requirement.

Kenya has in the recent past witnessed a rise in yields on short term maturities touching 10 per cent in the recent past even as long term bonds rose to 14 per cent. Last week President William Ruto lashed out at the Treasury for borrowing funds at nearly 14 per cent saying it was not sustainable.He is also pushing the tax man to increase collections from Sh2.1 trillion to Sh3 trillion.

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