CBK raises Sh48.5 billion in oversubscribed bond sale as interest rates fall
The auction, which closed on Wednesday, included two long-term bonds, the 15-year bond, first issued in 2018, and the 25-year bond that debuted in 2022.
The Central Bank of Kenya (CBK) has raised Sh48.5 billion from a highly oversubscribed bond sale, even as it turned down Sh10.5 billion worth of costly bids from investors.
The auction, which closed on Wednesday, included two long-term bonds, the 15-year bond, first issued in 2018, and the 25-year bond that debuted in 2022.
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The bonds were part of the government's ongoing effort to meet its domestic borrowing needs, with a combined target of Sh30 billion.
However, investors showed strong demand, offering Sh30.58 billion for the 15-year bond and Sh28.42 billion for the 25-year bond.
In total, the CBK accepted Sh23.75 billion from the 15-year bond and Sh24.73 billion from the 25-year bond, exceeding the original target.
The 15-year bond came with a coupon rate of 12.65 per cent, with a maturity period of 8.3 years, while the 25-year bond offered a rate of 14.18 per cent and a maturity of 22.8 years.
Investors demanded higher returns, seeking an effective yield of 14.32 per cent for the 15-year bond and 15.74 per cent for the 25-year option.
The CBK eventually settled for yields of 14.2 per cent and 15.68 per cent for the respective bonds.
To balance the difference between the coupon rates and investor demands, CBK offered price discounts of Sh5.34 per unit for the 15-year bond and Sh5.75 per unit for the 25-year bond.
Analysts noted that CBK's decision to reject expensive bids helps to maintain control over borrowing costs, despite the government's need for significant funds to meet its budgetary requirements.
"CBK continues to tame aggressive bidding to lower borrowing costs despite the government's high budgetary requirements," Sterling Capital analysts observed.
This bond issuance comes at a time when interest rates are falling, allowing the Treasury to issue longer-dated debt.
This strategy is part of an effort to lengthen the maturity profile of Kenya's domestic debt, which has become an important part of the government's financial management in the face of high borrowing needs.
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