By John Oyuke
Central Bank of Kenya (CBK) has for the first time reopened a Sh7 billion Treasury bond.
Reopening of government securities is expected to increasing trading and liquidity of specified bonds.
Monetary Operations and Debt Management Department Director, Jackson Kitili said the bond, first issued on October 27, attracting Sh4.42 billion would be reopened on April 27. He said the action is also part of the bank’s consolidation strategy to eliminate many small fragmented bonds.
Reopening involves increasing the outstanding amount of a previously issued bond. It involves offering additional amounts of the same instrument, which bears the same features of the existing outstanding bond, except for issuance date and possibly, the offer price or yield. A reopened bond has the same maturity date and coupon rate (interest rate) like the previous one.
However, the remaining term-to-maturity, the issue date and purchase price of the reopened bond are different from that of the original one.Through the operation — a standard practice in many countries — Kitili added, identified bonds with tenors of two, five, 10, 15 and 20 years would ultimately be the main trading bonds in the market. Requirements for participation in the auction for a reopened bond are the same as those for any auction of government securities. Investors are required to hold a central securities depository securities account with CBK.
Kitili said depending on prevailing market interest rates at the time of reopening, the reopened issue might have a different yield-to-maturity from its coupon rate though average yield of the reopened bond is determined at the reopening auction.
"As the bond is already being traded in the secondary market, its price at the reopening auction will be very close to the price in the secondary market," he said in a statement.
