Weak demand hits CBK Sh20 billion bond switch

Kenya’s attempt to manage its domestic borrowing through a Central Bank bond switch has recorded weak uptake from investors, with the auction falling far short of the government’s target despite offering attractive returns.

The exercise, meant to ease repayment pressure by moving holders of older debt into longer-dated securities, drew limited participation across the market.

The Central Bank aimed to exchange up to Sh20 billion worth of existing government bonds as part of its debt management strategy. However, total bids received stood at about Sh2.56 billion, representing only 12.8 per cent of the intended amount and pointing to subdued market appetite.

From the bids submitted, the regulator accepted about Sh1.75 billion, mostly from competitive offers. “Of the bids received, about Sh1.75 billion was accepted, with the majority coming from competitive bids,” said CBK director, financial markets Robert Aloo in the results.

The operation was designed to allow investors to switch from the older FXD1/2016/010 bond into the newer FXD1/2018/015 issue. This forms part of efforts to spread out repayment obligations and reduce pressure from maturing debt.

The new bond carries a coupon rate of 12.65 per cent and matures in 2033, offering steady returns over several years. Even with this relatively high rate, investor participation remained low, suggesting increased caution in the fixed-income market.

Auction data shows a bid-to-cover ratio of 1.46, meaning demand slightly exceeded the accepted amount, though overall participation remained weak. The weighted average yield of accepted bids stood at 11.97 percent, compared to a market average of 12.32 percent, indicating tighter investor pricing behaviour.

At an average yield, the bond was priced at Sh108.36 for every Sh100, showing it is trading above face value due to its strong coupon. Analysts link the subdued response to growing caution as investors reassess inflation and interest rate expectations.

The outcome reflects a softer tone in the domestic debt market, even as authorities continue relying on bond switches to manage Kenya’s borrowing profile.