Kenya aims for 25-year Treasury bond

Kenya’s Government says it will float the first 25-year bond since the 1960s, as part an initiative to help financial institutions offer long-term debt products such as mortgages and project finance. Previously Nairobi City Council offered a municipal bond, which was redeemed in the 1980s. Since then, the longest bond floated has been 20 years, according to the Business Daily (www.businessdailyafrica.com) newspaper.
The first 20-year bond in 2007 was largely ignored but the second one was taken up and even reopened in 2009. Currently 20 years is the longest home loan on offer. Lengthening the maturity of government debt can also be beneficial.
Governor of the Central Bank of Kenya (www.centralbank.go.ke), Prof Njuguna Ndung’u, reportedly told journalists in Nairobi that the bond could be floated in the next fiscal year, starting in July. “The existence of exit options at the secondary market [the Nairobi Stock Exchange –www.nse.co.ke] after buying the bond at the primary market should make it more attractive,” said Prof Ndung’u while addressing the press on the 23 March Monetary Policy Committee decision which cut the Central Bank Rate by 25 basis points (0.25 percentage points) to 6.75%.
He said the bond helps influence expectations on inflation and making the yield curve more useful by removing discontinuities.
According to the newspaper, in an earlier interview in February, Bond Traders Association chairman Mr Fred Mweni said that the market was keen about having long-term bonds and it would be in order for the CBK to introduce such. He said the bond market was maturing and it was clear that the longer-dated bonds were attracting relatively higher yields.
Prof Ndung’u reportedly said that a vibrant treasury bond market would encourage corporates to also issue bonds noting that the yield curve could serve as a much better guide than was previously the case. Another source said corporate bonds could prove more popular than syndicated bank debt, because of pricing.
The paper says the yield (return) of the 20-year bond, for example, is down from over 14% in 2008 and early 2009 to about 11%. The most recent 15-year bond, for example, the offered interest rate was 10.25%, down 225 basis points on the previous similar bond. It reportedly achieved an average interest rate of about 9.9%. The CBK Governor said during the press conference that “fear of exclusion” is driving institutions not to quote unrealistic rates when they participate at the auction markets for government paper.

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