The government is seeking to raise Sh30 billion through two tap sales of ten-year and twenty-year treasury bonds, intended to support the national budget.
A tap sale allows the government to sell Treasury bonds from previous issues, with the securities issued having the same terms as the original issue but sold at current market value.
The Central Bank of Kenya (CBK), acting as the government’s fiscal agent, has invited bids for these bonds, with the bidding process set to close on September 18, 2024.
For the ten-year bond, there is zero accrued interest (AI) over the nine years remaining, with withholding tax applied to the interest. This bond will be fully repaid by March 13, 2034.
Reliance on local bonds
The twenty-year bond accrues an AI of Sh0.2692 per Sh100 over the 12 years remaining, with withholding tax also computed on the interest. This bond will be fully repaid by September 1, 2036.
The government’s increasing reliance on local bonds reflects Kenya’s tight economic situation, exacerbated by the collapse of the 2024/2025 Finance Bill.
Selling to foreign investors is not a viable option, as foreign rates are significantly higher than local rates.
Last month, yields on Eurobonds rose, with the yield on the 7-year Eurobond issued in 2019 increasing by 80 basis points to 11.4 per cent from 10.6 per cent.
This rise was partly due to the downgrading of Kenya’s credit rating by Fitch, following a similar downgrade by Moody’s.
Moody’s downgraded Kenya’s creditworthiness from B3 to Caa1 in July, citing the president’s withdrawal of planned tax hikes. Fitch also warned that Kenya faces economic constraints due to the Mpox outbreak.
The increase in bond yields indicates that investors are demanding higher returns for holding these bonds, reflecting a perceived rise in the risk associated with the issuer.
Higher yields will make it more expensive for Kenya to borrow money in the future, potentially impacting the country’s ability to finance its debt and fund development projects.
