On Thursday, the Central Bank of Kenya (CBK), the selling agent for the National Treasury floated a three-year issuance seeking Sh20 billion for budgetary support.
Yields on the short-term bond will be market determined and are expected to trade between April 26 and 26.
"We have seen good uptake of T-bills. The market is attracted to short-term debt instruments. We are going to focus our bonds on this reality,'' a top National Treasury official told the Star in confidence.
He added that most of the money raised will go toward meeting recurrent budget obligations, contrasting President William Ruto's position that his government will not borrow to pay salaries.
“We are not going to borrow money to pay salaries,” Ruto said a fortnight ago.
The national and county governments are struggling to pay salaries with salary arrears running to three months in come counties.
Yesterday, the exchequer put on a brave face, saying the government is working towards clearing salary backlog and disbursements to counties.
It had earlier warned state employees to tighten their belts due to a cash crunch.
On average, Treasury requires about Sh50 billion monthly for civil servants’ salaries and another Sh8 billion for payment of pensions.
Furthermore, county governments are owed Sh29.6 billion for December, Sh31.45 billion for January and February each, and Sh29.6 billion for March.
This is the longest period that the devolved units have gone without receiving their equitable share of the revenue from the exchequer.
The change of long-term bonds of above 10 years to those below five years comes just a week after the reopening of a 15-year bond first sold in 2019 and a three-year paper first sold last year, seeking a total of Sh30 billion flopped.
The three-year bond raised just Sh1.76 billion, with the underperformance and the cancellation of the 15-year blamed on aggressive rate demands from investors amid a liquidity squeeze in the money market.
“It is not clear yet the reason behind the auction cancellation. The likely reasons could have been due to poor subscriptions in the wake of a tight money market, as well as overly aggressive bids,” said Mwango Capital in a note.
Capital market analyst Philip Mambo says the government had to do what it got to do because it urgently needs cash.
"We should expect regular short-term issues before the close of the financial year. Great uptake could even see the government cancel planned Eurobond due to hostility in the global financial market,'' Mambo said.
His sentiments are shared by Shem Kimotho of Ideal Capitals who says that Ruto's government is trying various options to avoid expensive external commercial debts.
The long-term bonds are not yielding. It hopes that the short-term issues will ride on the current success of T-bills to pull the necessary amount needed. The diaspora bond is another plan,'' Kimotho told the Star.
The 91-day Sh4 billion Treasury Bill issued last week attracted bids worth Sh24.8 billion, a clear high appetite for short-term securities.
