The Central Bank of Kenya (CBK) has missed its target for a second time by 51% in the July bond auction, with investors seeking higher rates to maximize their real yields.
- •The government accepted bids worth KSh9.8 billion out of the KSh14.7 billion received, reflecting a 66.5% acceptance rate.
- •The reopened 10-year and 20-year papers targeted to raise KSh 30 billion. However, they remained undersubscribed by 48.9%, mirroring investors’ desire to be price makers in the prevailing market conditions.
- •The 20 year paper was first issued in 2008 and was last reopened in November 2016 with a 77% subscription rate.
On the other hand, the 10-year paper, the FXD1/2024/010, was first auctioned in March 2024, with a subsequent tap sale. It was later reopened in May 2024 with a 60% under subscription.
Further, weekly Treasury Bills were undersubscribed for the first time in three weeks, with CBK receiving bids worth KSh21 billion out of the KSh24 billion offered. However, the government accepted a total of KSh18.7 billion, reflecting a 89.3% acceptance rate.
Demand remained pegged on the short term 91-day paper, which attracted bids worth KSh0.8 billion against the KSh4 billion on offer. The inclination to the short-term papers reflects investors’ expectations of higher rates.
Notably, the accepted average yields of all the papers now trail above the 16% mark, with the 91-day paper jolting higher by 2.6 basis points from the previous week.
The dynamics around CBKs commitment to regulate interest rates and investors’ high expectations point to market tension amid the regulator’s cautious stance.
The withdrawal of the Finance Bill 2024 raised concerns on the government’s fiscal position, prompting investors to hedge against duration risk, reflecting a wait and see attitude.
In the supplementary budget published earlier by the Exchequer, domestic borrowing was raised to KSh17.5 billion following the withdrawal of the Finance Bill 2024. The expected extensive government borrowing mirrors investors’ appetite for higher rates.
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