Bond sales pick up after rate cap wait

Cytonn Investment analyst Caleb Mugendi during the release of the banking sector report/FILE
Cytonn Investment analyst Caleb Mugendi during the release of the banking sector report/FILE

Fund managers are likely to increase investment in Treasury Bonds as long as the law capping interest rates on commercial loans is in place.

Over the year, investors have been reluctant to inject money in government bonds as they awaited the verdict on the rate cap law.

“The risk investors feared is once the rate cap was repealed, interest on the government securities would increase but this has not been the case,” Cytonn Investments analyst Caleb Mugendi told the Star.

After parliamentarians showed no sign of scrapping the law evident in the review to now base the cap on the Kenya Bank Reference Rate rather than the Central Bank rate, subscription of government bonds has seen an upsurge.

This has been evident in this month’s Sh40 billion sale of reopened Treasury bonds which had an 81 per cent subscription rate where Central Bank received bids worth Sh32.47 billion while last month’s tap sale recorded a 75.58 per cent subscription rate with Sh29.82 billion worth of bids received.

The government has accepted bids worth Sh201.72 billion in Treasury bonds auctioned by the Central Bank of Kenya in nine months.

Treasury has been floating at least Sh40 billion bonds every month since December last year, placing both external and domestic debt at par at Sh2.56 and Sh2.48 trillion respectively.