The National Treasury has missed its Ksh 50 billion target on tightening liquidity in the market this month. Investors picked up bonds worth Ksh41.2 billion falling short by Ksh8.8 billion, which is 83.7 percent performance rate.
According to analysts, the low subscription is due to liquidity tightening after last month investors’ bids were heavy when the Treasury first traded its infrastructure bond for 2021. The weighted average rate of accepted bids lies between 11.78 and 12.69 percent respectively against coupon rates of 11.25 and 12 percent.
This has seen investors demanding a greater return from the bonds.
“We hold a view that the infrastructure bond issuance played a major role in mopping the excess liquidity that was salient at the start of the year,” said analysts at Genghis capital.
The National Treasury in January managed Ksh137 billion from the domestic debt market with investors highly interested in attractive bonds issuance. Liquidity in the market was tightened by the heavy subscriptions with lending between banks rising by almost one percent to 5.56 percent in the past week.
The National Treasury is advised to allow borrowers to sell bonds from past issues in order to normalize its domestic borrowing curve on the back of the missed targets.
This comes at a time when Kenyan banks requested the Central Bank of Kenya not to publicly declare borrowed funds from the regulator.
“The respondents (banks) made proposals for CBK to further mitigate the impact of Covid-19. In summary, the banks have noted that there is a need for CBK, in conjunction with the National Treasury, to come up with other specific measures that particularly cushion institutions," the CBK said in the credit survey report.
CBK said in their report that this could be done by encouraging a discount window at a minimal rate and without stigma associated with the use of a discount window. The stigma associated with borrowing from CBK comes from past instances where desperate banks have collapsed after treading the slippery slope of asking the regulator for money.
The Central Bank is a lender of last resort which banks turn to after exhausting all other avenues including borrowing from each other.
