The government’s plans to reopen its 15-year bond issue was cancelled last week due to aggressive bidding by investors throwing the government’s plan to lengthen its debt maturity into a spin.This move caused a stir in the financial markets as it appears the government is turning away from the issuance of long-term bonds and focusing on the outperforming 91 Day.

National Treasury had planned to raise Sh40 billion ($370 million) by reopening its 15-year bond issue, however, the auction was cancelled after investors bid for much higher rates.

The cancellation of the bond issue has sparked concerns that the Kenyan government may be moving away from long-term borrowing, which has been a mainstay of its debt management strategy.

“The government’s medium-term debt management strategy demands that the government issues longer debted debt to reduce the refinancing risk, hence this presents a challenge,” said Churchil Ogutu, a senior research analyst at IC Group.

Alongside the reopening of the 15-year bond, the government also reopened a three-year bond and received bids totalling Sh7 billion, however, it took only Sh1 billion despite having sought Sh30 billion due to high bids received.

“During the Treasury bond auction of April 19, the re-opened three-year fixed-rate Treasury bond received bids totalling Sh7.3 billion against an advertised amount of Sh30 billion, representing a performance of 24.4 per cent,” CBK said.

Yield curve

Ogutu, however, said that the yield curve may not get inverted but could become flat in the medium term with yields in the short-term papers being equal to the long-term papers.

Instead, it appears that the government is focusing on the 91-Day Treasury bill, which has consistently outperformed other government securities in recent auctions.

The 91-Day Treasury bill is a short-term government security that is issued every week. It has a maturity period of three months and is considered a relatively safe investment for investors.