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Treasury targets Sh7bn in tap sale

The Treasury has opened a tap sale for this month’s 10-year Sh30 billion bonds —seeking an additional Sh7 billion.

The tap sale, which opened Tuesday closes on Thursday – or upon attainment of the target, with bids priced at 11.33 per cent for the 1.4 year and 11.974 per cent for 1.98 year tenor respectively. These were the rates for the accepted offers in the initial sale.

Analysts said the initial bonds were oversubscribed, with a performance rate coming in at 164.6 per cent, attracting Sh49.4 billon.

“Given that the market weighted average rates came in at 11.5 per cent and 12.2 per cent respectively, above accepted rate of 11.3 per cent and 12.0 per cent respectively, it is clear from this auction the government did not accept expensive bids having only accepted Sh32.8 billion out of the Sh49.4 billion worth of bids received, translating to an acceptance rate of 66.3 per cent,” said Cytonn Investments.

The government has only over two months to the close of the current fiscal year. The fact that borrowing from the foreign market is a much longer process than borrowing from the domestic market means the government is likely to use the latter to plug the deficit that is likely to arise, Cytonn Investments said in an earlier weekly note.

The analysts said this can create uncertainty in the interest rate environment as it may exert upward pressure on interest rates, and result in longer-term papers not offering investors the best returns (through devaluation) on a risk-adjusted basis.

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