8 January 2016

Kenya: Why Sh35 Billion Bond Could Be Hard Sell for Treasury

The government may find it hard convincing the market to take up a Sh35 billion two and 10 year bond that went on sale on Tuesday, with current expectations of a interest rate rise.

Commercial banks and fund managers are foreseeing a sharp rise in short-term interest rates as the government faces a huge bill of maturing debt.

According to Cytonn Investments, Treasury has borrowed Sh130.5 billion domestically by the end of last year against a target of about Sh114.1 billion.

Most of the borrowing was done over the Treasury Bill market, which mature in three months, six months and a year meaning the money has to be paid back within the financial year.

"The feeling among investors is that interest rates are going to rise. This month alone the government has a maturing debt of about Sh85 billion so the refinancing pressure will be high consequently rates will go up," CfC Stanbic Bank Regional Economist Jibran Qureishi said.

This might bring back the memories of October last year when the 91,182 and 364-day papers hit a high of 22.5 per cent, 22.3 per cent and 22.4 per cent, respectively when the government experienced a cash crunch.

The rates then fell sharply but are now reversing with the yield on 91 day Treasury Bill rising to 10.8 per cent at the end of 2015 while the 182-day T-bill rose to 12.8 per cent.

Analysts, however, say the supplementary budget expected next month, which might propose cuts in government spending, might ease pressure for government.

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