Central Bank of Kenya
Kingdom Securities
Kingdom Securities and Commercial Bank of Africa
Mercyline Gatebi

10-year bond forecast to do better on high maturities

Analysts expect improved demand for the December 10-year bond floated by the Treasury compared to recent issues, with pension funds and banks likely to lead the buyers as they eye higher yields on the paper.

Kingdom Securities and Commercial Bank of Africa say investors might bid aggressively for the paper— whose coupon is market determined—given the high maturities this month, which may push the Central Bank of Kenya (CBK) to accept more expensive bids than in recent months.

Recent bond issues have seen high rejection rate for bids deemed expensive, with the government accepting just over half of the offers received since July.

The Treasury is seeking Sh40 billion from the December bond with the proceeds meant to partly roll over Sh24.5 billion from a maturing two-year paper.

“The paper could receive considerable interest from local funds. A few banks may also bid for the paper, although their bids maybe somewhat aggressive to boost prospects of trading the bond,” said CBA analysts in a fixed-income note.

Kingdom Securities head of research Mercyline Gatebi says, however, that the performance of the December bond is likely to be affected somewhat by the continued thirst in the market for shorter duration papers.

These have not been forthcoming in recent primary issues as the government tries to lengthen the maturity profile of domestic debt.

The paper may not be fully subscribed due to a higher appetite for short-dated papers,” said Ms Gatebi.

“Aggressive investors are expected to bid between 12.4 and 12.65 per cent, while conservative investors may bid anywhere between 12.25 and 12.39 per cent for the 10-year paper…our projections are backed by the need for CBK to maintain some form of yield stability and also market sentiments.”

Overall, the maturities plus interest payments for bonds this month total to Sh42.9 billion, according to Kingdom Securities’ calculations.

Treasury bill maturities plus interest for the month total Sh94 billion, meaning that the government has little wriggle room if it is to raise new borrowing for the month.

The target amount in primary offers this month for T-bills and bonds is Sh160 billion, with CBK having already raised Sh17.3 billion in the T-bill auctions done last week against the Sh24 billion they were seeking.

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