First ever domestic bond buyback earns CBK Sh50 billion
Early this month, the CBK announced its first ever domestic bond buyback, allowing investors to sell back three bond issues worth KES50 billion before maturity dates.
The Central Bank of Kenya (CBK) successfully met its buyback goal, raising KES50.8 billion in the three bonds maturing in April and May, surpassing its KES50 billion target.
A domestic bond buyback occurs when a government or issuer pays off bonds before they mature to help reduce the amount of debt that needs to be paid in the short term.
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Early this month, the CBK announced its first ever domestic bond buyback, allowing investors to sell back three bond issues worth KES50 billion before maturity dates. The move aims to ease the burden of heavy maturities in mid-2025, which coincide with an upward revision of the current year’s domestic borrowing target.
The government moved to raise the domestic borrowing target for the 2024/25 fiscal year to KES582.7 billion from KES413.1 billion, further exerting pressure on the domestic market.
The total value of the three bonds was KES185.1 billion, comprising the three-year paper set to mature in April 2025 and the 5-year paper and the 9-year infrastructure bond, maturing in May.
The 5-year paper was the most sought after and it attracted offers worth KES40.1 billion. The 3-year paper came second after receiving offers worth KES10.3 billion while the 9-year infrastructure bond only garnered bids worth KES5.7 billion reflecting an 11.48 percent performance rate. Collectively, the buyback attracted bids worth KES56.1 billion with the Central Bank accepting KES50.1 billion.
According to CBK, investors were paid based on the buyback price per KES100 at an average yield. Consequently, the government paid KES103.9422 for the 5-year paper inclusive of a 3.43 accrued interest. With a similar accrued interest, the 9-year infrastructure bond returned KES104.1433 while the 3-year paper yielded 104.6775 with an accrued interest of 4.3638.
As a result of the successful debut of the domestic bond buyback, the April-May maturities targeted in the buyback have been cut down to KES135.1 billion. Furthermore, the two reopened February infrastructure bonds were oversubscribed in the previous week, with the government raising KES130.8 billion against a KES70 billion target as proceeds from the tax free infrastructure bonds financed the buyback.
