The Central Bank of Kenya (CBK) raised KES 31.5 billion from the January bond auction on Tuesday, raising significantly less than the KES 50 billion targets.
The difference between the acceptance rate and the bid amounts is primarily due to the CBK’s rejection of expensive quotes.
Investors bid a total of KES 41.6 billion, with KES 10.1 billion rejected in the auction, which resulted in a significant increase in fixed-income returns.
With no maturities in December and no other expected in February, the government is under less pressure to accept expensive bids in the January bond issue.
Simultaneously, the CBK saw lower maturities in January after shifting some of the expected redemptions through November’s switch auction.
Investor bids were centred on the shorter maturing paper with a maturity date of 2.4 years, totalling KES 27.6 billion, as investors weighed duration risks and avoided the longer-dated option.
Successful subscribers to the reopened bonds will earn a premium, with the weighted average rate of accepted bids on the five-year and 15-year securities standing at 12.879 and 14.186 per cent, respectively.
The higher return contrasts with coupon rates of 11.667 per cent and 13.942 per cent, which reflect the government’s continued pressure to pay a premium to bondholders.
In the face of high inflation, investors’ preference for risk-adjusted returns has increased.
Despite falling short of its target, the CBK has signalled a revival of investor interest in government paper. The previous reopened bond auction in December returned a subscription rate of 76.4 per cent.
Business daily reports and increased investor participation has been facilitated partly by improved liquidity in the money markets during the bond auction, with government payments anchoring the high liquidity levels.
Given the reduction in redemptions this month, the total of Sh31.5 billion raised in the issue is expected to be channelled towards new borrowing.
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