Investors offer record Sh181bn for Treasury bonds in July sale
The Central Bank of Kenya building in Nairobi.
What you need to know:
- The CBK, which is the government’s fiscal agent, said it took up Sh80.9 billion out of the funds offered, leaving Sh100 billion on the table.
The high appetite for bonds is also driven by negative or low returns in other asset classes such as equities and property.
Businesses have been hit hard by the Covid-19 containment measures, and many personal loan borrowers have also suffered job losses.
Investors bid a record Sh181.8 billion in this month’s Treasury bond sale, indicating a market flush with liquidity amid a dearth of investment options.
The Central Bank of Kenya (CBK) had taken the rare step of offering the bond in three tenors of five, 10 and 15 years. It normally floats single or dual tenor papers, which meant that all the different classes of investors were catered for.
The CBK, which is the government’s fiscal agent, said it took up Sh80.9 billion out of the funds offered, leaving Sh100 billion on the table.
The higher-than-targeted amount taken up is, however, 16.4 per cent of the government’s net domestic borrowing target of Sh494 billion for the current fiscal year, pushing it ahead of the ceiling in the early days of the borrowing calendar.
The high appetite for bonds is also driven by negative or low returns in other asset classes such as equities and property.
REVENUE COLLECTION
“With our expectations of dip in ordinary revenue collection on the backdrop of Covid-19 fallout, the triple tranche primary bond issuance is aimed at ramping the nascent fiscal year’s revenue,” said Genghis Capital head of research Churchill Ogutu in a note on the bond.
By offering the paper in three tranches, the Treasury catered for banks, which prefer short dated papers such as the five year, and pension funds which prefer longer dated bonds.
The bids on the five-year amounted to Sh65.3 billion, the 10-year got bids worth Sh55.5 billion while the 15-year saw bids worth Sh60.9 billion.
Although the highly liquid money market has contributed to the record amount in bids at the bond sale, there are concerns that banks have been preferring to lend to the government instead of the private sector.
Businesses have been hit hard by the Covid-19 containment measures, and many personal loan borrowers have also suffered job losses.
RISK PROFILE
This has raised their risk profile, with analysts saying lenders keen on keeping a lid on non-performing loans would then be inclined to go for the low-risk government securities instead.
In its June monetary policy committee meeting, the CBK said the ratio of gross non-performing loans (NPLs) to gross loans stood at 13 per cent in May, compared to 13.1 per cent in April.
The NPL ratio stood at 12 per cent at the beginning of the year.
Private sector credit growth also slowed down in May, growing at an annual rate of 8.1 per cent compared to nine per cent in April.
