The Treasury has opened a tap sale on the June bond in a move that will help the Central Bank of Kenya (CBK) eliminate excess liquidity that saw the initial sale highly overwritten.
The government fiscal agent is targeting Sh50 billion from the direct sale of the two reopened 20-year Treasury bonds, which raised Sh19.7 billion from offers worth Sh64.9 billion. The bond was targeting Sh30 billion.
These papers were sold for the first time in 2019 and 2012 with a maturity of 17.9 years and 11.4 years respectively.
The high underwriting was attributed to a liquid market, due to government payments to its agencies and departments as the end of the fiscal year approaches.
Therefore, the sale of the tap is expected to drain this excess liquidity.
“The market is awash with excess liquidity and the apex bank is on strike while the iron is hot … the tap sale is a way to clean up excess liquidity,” said Churchill Ogutu, head of research at Genghis Capital.
The CBK has also been aggressive in cleaning up liquidity through term auction deposits (TADs) which brought in a total of Sh102.9 billion in the last month.
Liquidity absorbing activities tend to help strengthen the shilling. However, Ogutu said that it has not been the government’s primary intention to use this month’s tap sale to support the currency, which will be driven by higher foreign reserves than expected external flows this week.