Government eyeing excess money in the market by tempting investors with long-term maturing bonds

(Photo: Courtesy)

The Government is eyeing excess money in the market by tempting investors with long-term maturing bonds to reduce its debt repayment pressure.

Central Bank of Kenya has advertised the reopening of a Sh30 billion 15-year and 10-year bond to plug the budget shortfall.

Analysts say this is a good move given that there is currently high demand for Government securities in a rate cap environment.

“I think it is a good strategy because it helps the Government lengthen the duration of its debts,” said Stanbic Bank Regional Economist for East Africa Jibran Qureishi. “There is still demand for Government debt and since the year is ending and people are closing their books, the subscriptions will be good with the rate cap in place, and a buyout of monetary policy manoeuvres,” he added.

Investment firm Cytonn, however, sees the Government paying a premium as investors seek higher yields at the bond market with intensifying of domestic borrowing. Investors will be keen to push the rate up from what the bonds are currently trading at in the secondary market.

“The bonds are currently trading at yields of 12.5 per cent and 12.8 per cent for the 15-year and 10-year bonds in the secondary market, respectively. Thus, we expect bids at yields of between 12.5 per cent and 13 per cent and 12.8 per cent and 13.3 per cent for the 15-year and 10-year bonds, respectively,” Cytonn said in a note to investors.