The National Treasury is set to move away from issuing short-dated bonds in the coming months, indicating potential drops in interest rates on domestic debt in line with lower Central Bank of Kenya (CBK) indicative lending rates.
Over the past two years, the government has largely relied on a series of short-term bonds of two to five years and reopening of paper nearing maturity to finance the budget deficit, wary of committing to longer-term debt at high interest rates.
The Treasury has now published a bond issuance calendar for the current fiscal year, showing that the bulk of upcoming bond sales will carry a tenor of between 10 and 20 years.
This is the first time the government has publicised its forward-looking bond issuance programme in its periodic annual borrowing plan report. The calendar is meant to give guidance to investors in planning their investments.
The plan shows that the CBK will float bonds of a tenor of 15 to 20 years in March and April 2025, and those of a tenor of 10-15 years in November 2024, January, February, and May 2025.
In November and December 2024, and January 2025, there will also be issuances of bonds of five-10 years’ tenor, to accompany the longer-dated papers in multi-tranche sales. The only bond with a maturity of less than five years is planned for June 2025.
The majority of the bonds will target between Sh40 billion and Sh60 billion, except the May 2025 sale that is set to seek between Sh60 billion and Sh80 billion.
The Treasury added, however, that the issuance plan can be reviewed during the year in consultation with the market participants and other stakeholders.
The bonds will all be reopened papers, according to the Treasury, which will allow the CBK to keep some measure of control on coupon rates, rather than allowing them to be market-determined as is the case when new bonds are issued.
The longer-dated papers will also help the government reduce its refinancing risk on domestic debt, which has gone up with the rise in the concentration of debt in short-duration bonds.
As of June 2024, the average time to maturity for Kenya’s overall public debt fell to 7.8 years from 9.4 years a year earlier. On domestic bonds, the time to maturity shrunk to 7.5 years from 8.6 years in 2023.
The proportion of bonds with remaining time to maturity of between one and five years increased to 39.8 percent from 36.9 percent in the period, while those with more than 10 years’ tenor fell to 22.2 percent from 34.3 percent.
The value of outstanding bonds in the market as of October 9 stood at Sh4.75 trillion, equivalent to 84.3 percent of the government’s domestic debt of Sh5.64 trillion.
The period to maturity for debt is one of the measures the Treasury takes into account when assessing the risk associated with public debt, and the overall sustainability of the debt.
The shorter the duration, the higher the refinancing risk, since the government has to repay large amounts of debt in a short period, straining its liquidity.
