September Treasury Bonds hit 225 per cent success rate

September 22, 2016
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he Central Bank of Kenya (CBK) had offered 5-year and 20-year Treasury Bonds for a total amount of Sh25billion/FILE
he Central Bank of Kenya (CBK) had offered 5-year and 20-year Treasury Bonds for a total amount of Sh25billion/FILE

, NAIROBI, Kenya, Sep 22 – Treasury Bonds for the month of September received overwhelming bids with a performance rate of 225 per cent signalling that banks could be preferring to lend to the government than the private sector.

The Central Bank of Kenya (CBK) had offered 5-year and 20-year Treasury Bonds for a total amount of Sh25 billion.

The total number of bids received was 771 amounting to Sh38.65 billion and 734 amounting to Sh17.80 billion for the 5-year and 20-year bond respectively.

However CBK only accepted Sh35 billion as the weighted average rate for successful bids was 13.112 per cent for the 5-year Bond and 14.601 per cent for the 20-year Bond.

The bids were submitted before the MPC decision of 20 September 2016, which lowered the Central Bank Rate (CBR) from 10.5 per cent to 10 per cent.

According to Commercial Bank of Africa (CBA) Treasury Department, banks will now focus on selling their money to the government as it’s safer to lend to the government.

“Banks are in business, they will have to do what makes sense to them, since the cap will limit who they lend to it is high likely they will focus on lending to the government,” the department told Capital FM Business.

CBK Governor Patrick Njoroge says the new banking law capping interest rates at 4 per cent above the Central Bank Rate (CBR) has ‘complicated’ the monetary policy and could be adverse reactions on credit to the private sector.

In a news conference on Wednesday Njoroge says there is a possibility that risky borrowers could be cut off and this may lead to a huge decrease in private sector credit.

Kenyan banks have been enjoying interest rate spreads of about 11.4 per cent on average, way above the world average of 6.6 per cent.

Moreover, their Return on Earnings (ROE) was at 30 per cent while for banks in other places such as Europe it is at 7 per cent, South Africa is at 15 per cent

Treasury bonds are a secure, medium- to long-term investment that offers interest payments every six months throughout the bond’s maturity.

CBK auctions Treasury bonds on a monthly basis, but offers a variety of bonds throughout the year, so prospective investors should regularly check for upcoming auctions.

Most Treasury bonds in Kenya are fixed rate, meaning that the interest rate determined at auction is locked in for the entire life of the bond.

This makes Treasury bonds a predictable, long-term source of income.

The National Treasury also occasionally issues tax-exempt infrastructure bonds, a very attractive investment.

Individuals and corporate bodies can invest in Treasury bonds as a nominee of a commercial bank or investment bank in Kenya, but if you hold a bank account with a local commercial bank you can also invest directly through the Central Bank and avoid additional fees.

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