Central Bank of Kenya (CBK) is seeking another Sh15 billion from the tap (reopened) sale of two January bonds which will remain open in the next three days after rejecting expensive bids in the previous sales.

The apex bank, acting as the State’s fiscal agent, yesterday reopened the three-year treasury paper first issued on January 10 and the five-year paper initially floated in July 2023.

Tap sales involve offering additional units of an existing bond issue to investors, providing them with an opportunity to purchase more bonds and the government with a chance to raise additional funds.

In this fresh offer, the three-year tenor bond has a fixed coupon rate of 18.3854 per cent, while the five-year one is set at 16.844 per cent. The latter, however, has a higher anticipated return to investors as CBK places its average yield at 18.7697 percent.

“Bids shall be priced at the average rate of the accepted bids for the Treasury Bond Auction value dated 15/01/2024 and adjusted for accrued interest,” CBK stated in the tap sale note. The offer runs until Thursday, January 18, or upon the attainment of the Sh15 billion quantum, whichever comes first.

Investors are currently bending more on the short three-year paper as they are wary of the government’s ability to pay amid rising interest rates and devaluation of the Kenyan shilling against major currencies.

During the tap sales of January 10, 2023, the two papers failed to raise the targeted Sh35 billion at the preferred interest rate, with CBK accepting Sh22.07 billion from the three-year paper and just Sh2.95 billion from the five-year despite oversubscription. “

The 3-year fixed rate and 5-year fixed-rate Treasury bonds received bids totaling KSh37.2 billion against an advertised amount of KSh35 billion, representing a performance of 106.1 percent,” CBK stated in the last weekly bulletin.

By seeking to mop up additional units from the previously rejected bond issues, the government can tap into the existing demand from investors without having to rely solely on the outcome of a single auction. CBK’s lower acceptance of offers seems to be continued attempts to control yields on government paper by rejecting expensive investor bids, a prudent step to maintain stability in the bond market and flow of funds through auction.

Investors are anticipating the interest rates will continue to rise as the monetary policy stance heightens and are not willing to lock themselves out by taking the long-tenure securities.

The government, on the other hand, is battling to replace short-term securities with longer ones to avert the pressures of repaying maturing debts.

The CBK has been battling to check interest rates on government paper amid large expectations of higher rates.

Investor expectations of higher interest rates have resulted in the inversion of the yield curve after the subdued demand for medium and long-term securities while interest rates on short-term debt/T-Bills have shot up as investors seek only to lock in short tenure securities with the expectation of high interest rates.