CBK Lures Investors With High Interest, Tax Free Bonds 

The Central Bank of Kenya (CBK) has issued two infrastructure bonds in a bid to raise the government’s domestic borrowing - which has been recently hit by low appetite for government bonds. 

The government has invited local investors to make bids that will see the CBK raise Ksh50 billion to finance infrastructure projects for the 2024/2025 financial year. 

The first bond has a term of 5.8 years with a 17.9327% interest rate. The second bond has a term of 15.7 years with a 14.3990% interest rate.

The sale period for these bonds extends from July 25 to August 14, 2024, culminating in an auction on August 14. 

The minimum investment amount is set at Ksh50,000.  After the auction, the bonds will be available for trading on the Nairobi Securities Exchange (NSE) starting August 19, 2024.

Investors can submit their bids electronically through the CBK DhowCSD or TMD systems by 10:00 a.m. on August 14, 2024.

Earlier in July, the government issued a bond to raise Ksh20 billion but was able to get only 2% from investors. Investors preferred short-term investments due to the uncertainty in the country’s debt obligation and anticipated higher interest rates.

“Across the tap sale of the FXD1/2023/002 treasury bond, out of Ksh20 billion on offer, investors submitted KSh487.5 million, a performance rate of 2.44% with the Central Bank of Kenya accepting Ksh485.48 million,” CBK said in an update on the results of the treasury bonds tap sale.

In the international market, Kenya is anticipated to secure less debt because of the current economic conditions. As a result, the country is likely to rely more on domestic debt, which has led investors to expect higher interest rates. This expectation contributed to lower investment in the July bond issuance.

The development comes at a time that the CBK and the Capital Markets Authority are working on a framework that will see ordinary Kenyans invest in government bonds from as low as Ksh664 - down from the current Ksh50,000 minimum amount. 

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The Capital Markets Authority (CMA) recently announced that the CBK had sought consultancy services to evaluate the pre- and post-implementation phases of the hustler bond platform.

“The introduction of the hustler bond system by the Central Bank of Kenya to lower the entry barrier for retail investors into Treasury securities is expected to enhance market growth and stability by broadening investor participation and increasing demand for Government bonds and bills,” CMA said in its latest Soundness Report.

In addition to the hustler bond system, the CBK plans to reactivate the M-Akiba program, which is a mobile-based bond purchase platform. In June, the Treasury modified M-Akiba so that it can no longer be traded on the secondary market.

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