The government
has launched its ambitious domestic borrowing programme on a strong footing
after investors more than doubled subscriptions in the first Treasury bond sale
of the 2026/27 financial year.
This signals robust
demand for government securities despite lingering concerns over long-term
interest rates.
Fresh data from
the Central Bank of Kenya (CBK) shows investors submitted bids worth Sh144.47
billion against a target of Sh70 billion, translating to an oversubscription
rate of 206.4 per cent.
The strong
reception offers an encouraging start for the National Treasury, which plans to
source Sh890.4 billion from the local market this financial year to help finance
the Sh4.78 trillion budget.
The exchequer
is expected to plug a fiscal deficit estimated at 4.6 per cent of GDP.
However, the
auction also exposed a clear shift in investor preference.
Most investors
flocked to shorter-term government paper while showing caution toward locking
up money for two or three decades amid expectations that interest rates could
change over time.
The 10-year
FXD1/2022/010 bond, which matures in May 2032, attracted Sh103.96 billion in
bids, nearly 72 per cent of all applications received.
The bond was
more than twice subscribed, underlining investors' appetite for medium-term
securities offering attractive returns with relatively lower duration risk.
It was priced
above its face value at Sh105.14 for every Sh100 and cleared at an accepted
yield of 12.9 per cent, below its coupon rate of 13.5 percent, indicating
investors were willing to pay a premium for the paper.
In contrast,
demand for longer-dated bonds remained subdued.
The 20-year
FXD1/2021/020 bond achieved a performance rate of just 29.8 percent and settled
at an accepted yield of 14.3 per cent, while the 30-year FXD1/2026/030 bond
recorded a 28.1 per cent performance rate.
It attracted
only Sh6.03 billion in accepted bids and was priced well below par at Sh88.60,
reflecting a weaker appetite for locking in funds over a long period.
Overall, CBK
accepted Sh70.6 billion in bids, all representing fresh borrowing, with
settlement scheduled for July 13.
The outcome
suggests investors remain confident in government debt but are increasingly
selective about maturity, favouring shorter-duration instruments while
demanding higher returns to hold longer-term bonds.
The latest
auction also builds on last year's record borrowing programme, during which the
government raised a net Sh1.006 trillion through 19 bond auctions and two tap
sales.
This was the
largest annual domestic bond issuance on record.
Meanwhile, the
Nairobi Securities Exchange (NSE) reported mixed activities during the week
ended July 9.
The NSE All
Share Index rose 0.78 per cent while the NSE 20 Share Index edged up 0.09 per cent.
Market
capitalisation also gained 0.78 per cent, although trading activity slowed
sharply, with both equity turnover and the number of shares traded dropping by
more than 98 per cent.
