The Central Bank of Kenya has successfully switched KES 1.76 billion from source bond FXD1/2016/010 to the destination bond FXD1/2018/015. The source bond has 0.3 years to maturity, while the destination bond has 7.1 years to maturity, with the two papers having coupon rates of 15.0390% and 12.6500%, respectively.
With the maturity of the FXD1/2016/010 paper approaching (125 days to maturity), the switch auction is designed to offer the investors of the bond a new longer-term bond instead of waiting for maturity and extinguishing of FXD1/2016/010. The destination is a bond with a coupon rate of 12.6500% which is lower than the source bond’s coupon by 2.389%.
CBK Receives KES 2.6B Bids, Accepts KES 1.75B
In this auction, the amount that the CBK offered was KES 20B, with the total bids received at cost totaling KES 2.559B, translating to a performance rate of 12.80%. The CBK accepted KES 1.75 billion, comprising of non-competitive bids totaling KES 533.85 million and competitive bids totaling KES 1.219 billion. KES 1.76 billion was successfully switched to FXD1/2018/015.
Switch auctions give governments the flexibility in managing debt repayment and avoid spikes in repayment obligations. The government gets to lock in longer-term yields in destination bonds and the overall process delays cash outflows that would have otherwise gone to retiring the source bond.
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