The Central Bank of Kenya (CBK) said its November swap bond sale drew KSh3.78 billion, far short of the KSh10 billion it had targeted.
The offer allowed holders of the five-year Treasury bond maturing in July 2028 to exchange for a new 10-year bond due in November 2029, and was also extended to owners of Treasury bills maturing on November 26, 2026.
Investors took up only 37.8 per cent of the issue, swapping KSh785.25 million of the five-year bond and KSh3.07 billion of 91-day Treasury bills, together with KSh250,000 of 182-day bills and KSh33.3 million of 364-day bills.
The five-year bond carries an annual interest rate of 16.84 per cent, while the 10-year paper offers 12.28 per cent, a gap that analysts said discouraged participation.
A fixed-income dealer at an investment bank explained that the higher return on the five-year security for the remaining 20 months, combined with a higher withholding tax of 15 per cent versus 10 per cent on the longer bond, made the older issue “a clear winner.”
The November uptake was lower than the October and September swaps, which respectively raised KSh9 billion and KSh11 billion against the same KSh10 billion target.
The five-year bond has a total outstanding amount of KSh144.5 billion, while the destination 10-year bond carries KSh122.2 billion in outstanding value.
The weak response comes as inflation in Kenya rose to a 40-month high of 7.3 per cent in October, prompting expectations that the CBK will raise its base rate.
In a recent auction of reopened 15- and 30-year bonds, investors demanded an effective return of 14.17 per cent on the 30-year paper that pays 12.5 per cent, leading the CBK to discount the price by KSh10.61 per KSh100 unit.
Internationally, the US Federal Reserve lifted its policy rate by 0.25 percentage point to a range of 3.75-4 per cent in September and the Bank of England raised its rate to 4 per cent on November 5, making foreign assets more attractive and prompting capital outflows from Kenya.
