DEBT BINGE

CBK chided for accepting more bids than advertised

In Summary
  • CBK accepted bids worth Sh63.7 billion for two reopened bonds with a total value of Sh50 billion.
  • Higher yield for local debt could crowd out the private sector from the credit market, causing a stagnation in general economy.
Central Bank CBK Headquarters
Central Bank CBK Headquarters

Kenya's high demand for local debt saw Central Bank accept more bids than Sh50 billion advertised in two reopened bonds issued early last year.

According to the sell results released Wednesday, CBK accepted bids worth Sh63.7 billion for two reopened bonds with a total value of Sh50 billion.

The five year bond bond issued February 19 last year was priced 11.3 per cent while the 10- year bond was priced at 12.4 per cent .

The apex bank which trades government papers on behalf of the National Treasury had received total bids worth Sh69.9 billion, illustrating a subscription rate of 139.8 per cent, highest in recent months.

The absorption of spillover bids by the government has sparked debate among money market analysts with some linking the move to empty government coffers.

''This is a scenario where Tom who asks for Sh50 loan but when offered Sh100 by Paul, fails to return the balance. It means three thing. The government is either borrowing carelessly, has no money or simply greedy,'' a financial expert at Eagles Capital Tom Werunga told the Star on phone.

 

He added that the recent trend where local bonds are oversubscribed post interest cap law is a sight to behold.

According to CBK bulletin for the week ended January 16, turnover of bonds traded in the domestic secondary market rose by 123.64 per cent during

Others like Mihr Thakar have lauded CBK's action, saying it is good to jump on positive prospects of long term bonds than reliance on short term issues.

''It is positive that longer tenure finance is being opted for, as opposed to shorter term T Bills. Unrequited financing requirements in other auctions released here,'' Thakar said.

Improving yields on government papers are seen as a bait for investors after subdued demand weeks before and after the country scrapped cap law on bank loans.

The government's plan to raise yield for its local debt instruments to bait banks which are likely to gravitate towards conventional lending was predicted by EFG Hermes in December

'The single drawback, on a macro level, is probably going to be elevated borrowing cost for the government, adding to pressures on an already tight fiscal stance,'' economists at EFG Hermes Kenya said

 

It said higher yield for local debt could crowd out the private sector from the credit market, causing a stagnation in general economy.

Last week,President Uhuru Kenyatta announced that the government was planning to issue Sh150 billion note which will be partially used to clear pending bills.