Treasury turns down Sh12bn due to high rates

The government has turned down Sh12 billion in domestic loans from a two and ten year bond after investors concentrated their bids on the short term while demanding premium rates.

The National Treasury’s mixed bond attracted Sh36 billion with the two year part of the bond netting Sh30.3 billion while the ten year part only got Sh5.9 billion in bids.

Although the national treasury had set out to borrow Sh35 billion it resorted to take only Sh24 billion due to high coupon rates and unbalanced bids.

Treasury picked up Sh20.1 billion for the two year part at 15.7 per cent coupon rate and Sh3.9 billion for the ten year part at 12.3 per cent.

“I think the market was not very submissive to the government to offer favourable rates and pushed the government above its threshold and they were not comfortable with the bids,” CfC Stanbic Bank Regional Economist, Jibran Qureishi said.

The government is trying to balance its local debt to reduce pressures of repaying the loans when they mature.

Last year, when facing a cash crunch Treasury was forced to pick up short term debts from Treasury Bills at high rates which mature between three months and a year.

Maturing debt

According to analysts the government is facing a bill of up to Sh85 billion in maturing debt this month alone which increases pressure to borrow more to repay the debts.

Commercial Banks and fund managers are foreseeing a sharp spike in short term interest rates as the government is faced with a huge bill of maturing debt.

The government has also been trying to offer long term bonds to reduce the pressure for financing the budget through short term loans.

In August the government reopened a two year bond and offered one year bonds in September and October while in November the government offered a five year bond.

The two and ten year bond however comes after he National Treasury failed to raise a Sh30 billion through a nine year infrastructure bond.

The infrastructure bond meant to fund projects in energy, water and transport sectors was undersubscribed by half and the government reopened it on December 14 for two week tap sales which only brought in Sh2.38 billion in the first week.

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