Treasury Set Bond Issuance Threshold at Sh50 Billion

Treasury is set to introduce an issuance threshold of Sh 50 Billion on local bonds under proposed measures to reduce the government’s domestic borrowing.

The proposed reforms by the Treasury will improve the yield curve, which guides the pricing of debt issuances, including those of private companies eyeing capital markets for funds.

These reforms are backed up by the World Bank, since they are tied to a financing programme called the Development Policy Operations (DPO).

The programme targets benchmark bonds to strengthen them and set performance standards for other bonds in terms of pricing & evening out liquidity.

According to the World Bank Analyst’s in a report for the approval of the DPO, the measures support overall capital market development and deepening. As a result, the higher quality yield curve will provide better price discovery and improved pricing as per the long-term risk-free rates and cost of capital within the country.

“The results indicator measures increased liquidity concentration and reduced fragmentation in the curve through an increase in minimum benchmark size, aiming for all marketable bonds remaining with a maturity of up to 5 years to have a minimum issuance size of about Sh 50 billion. However, for bonds with a remaining maturity of more than 5 years will have a minimum issuance size of at least Sh 75 billion”.The analysts reported.

The Central Bank of Kenya (CBK) has in the past years, attempted to better the yield curve by ascertaining that new offers are within the curve while rejecting bids considered to be too expensive.

Philly Opere.