- Treasury Bonds Auction for the month of July recorded only a 2 percent subscription rate
- The domestic bond market has faced challenges, despite the lower yields on Eurobonds
- This high yield reflects investor concerns about Kenya’s economic stability and fiscal health
Investors have shied away from government bonds as the treasury only managed to raise 2 per cent of the Sh20 billion it had targeted in its July tap sale.
This saw the government only get Sh487.5million as the investors instead preferring to pump funds into short-term Treasury bills on expectations that interest rates will soon go up in the country.
The bonds are instruments through which the government will use to borrow from the market.
The domestic bond market has faced challenges. Despite the lower yields on Eurobonds, yields on Kenyan government bonds remain high, with 10-year bonds yielding 17.759 per cent as of early July 2024.
This high yield reflects investor concerns about Kenya’s economic stability and fiscal health or its ability to meet its debt obligations. Investors might be wary of potential risks or instability.
“Across the tap sale of the FXD1/2023/002 treasury bond, out of Sh20 billion on offer, investors submitted Sh487.5 million, a performance rate of 2.44 per cent with the Central Bank of Kenya accepting Sh485.48 million,” CBK said Thursday in an update on the results of the treasury bonds tap sale.
The undersubscription could limit the government’s ability to raise funds for public spending, potentially leading to cuts in government programs or the need to find alternative financing sources.
Further if investors are hesitant to buy government bonds, it could lead to a decline in the country’s currency value as confidence in the economy wanes.
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Treasury Bonds Auction
After Tuesdays’ frustrating demos on Tuesday that had been infiltrated by goons, Gen Zs on Twitter spaces were suggesting that the public stop investing in government bonds & bills to starve the government of funding.
They argued that this will deny the government an estimated Sh100 billion monthly and that way the state will notice.
However, Investors are heavily favoring short-term Treasury bills reflecting a cautious approach to the current economic climate.
The latest auction results show an overwhelming demand for the 91-day T-bill, with bids amounting to Sh14.8 billion against an offered amount of Ksh4 billion.
The 182-day T-bill saw bids of Sh9.4 billion compared to an offered amount of Ksh10 billion, indicating robust interest but slightly falling short of the target.
The 364-day T-bill, however, attracted bids of Sh5.6 billion against the offered Ksh10 billion, highlighting a more significant gap between demand and supply.
This trend suggests that investors are currently more comfortable with shorter maturities, likely due to uncertainties in the economic outlook and the need for quicker returns amidst a high-interest-rate environment.
The strong preference for short-term securities underscores ongoing market cautiousness and strategic liquidity management.
According to experts Overall, the oversubscription of short-term T-bills and undersubscription of long-term bonds highlight a cautious investor sentiment, driven by uncertainty and a desire for liquidity and flexibility.
This trend can be a signal to policymakers about the need to address underlying economic concerns to restore investor confidence in longer-term investments.
Central Bank Governor Kamau Thugge had in February warned that, the challenges Kenya should brace for in 2024, include tightening global conditions that will cascade to local levels and debt sustainability issues.
In the week ahead of the new financial year that began July 1, T-bills experienced undersubscription for the third consecutive week, with the subscription rate falling further to 32 per cent from the previous week’s 60per cent.
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