The Central Bank of Kenya (CBK) has unveiled an ambitious plan to raise Sh30 billion from the reopening of two 10-year bonds, as it seeks to attract investors amid soaring interest rates.

The auction, scheduled to close in early October, presents a lucrative opportunity for investors keen to capitalise on the current high-yield environment.

Details of the Bonds on Offer

One of the bonds was initially issued in 2016, offering a coupon rate of 15.039 percent, and has 1.8 years remaining to maturity.

The second bond, first floated in 2022, comes with a coupon rate of 13.49 per cent and has 7.6 years left before redemption.

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While the coupon rates of the bonds are fixed, investors could potentially enjoy higher returns.

This is due to the CBK offering discounts on the purchase price when reopening a lower-yield bond in a high-interest-rate environment.

These discounts are designed to enhance returns since interest is paid based on the bond’s face value, and investors will still receive the full principal upon maturity, despite having paid a discounted price.

Tax and Duration

Both bonds are subject to a 10 per cent withholding tax on interest earned, and investors have until 9 October to participate in the auction.

Rising Interest Rates and Their Impact

The launch of this bond sale comes in the wake of rapidly rising interest rates, driven by a combination of government borrowing and the CBK’s monetary policy aimed at stabilising the economy.

The government’s increased appetite for domestic borrowing, coupled with measures taken to defend the shilling and curb inflation, has led to a sharp rise in rates.

The CBK’s benchmark lending rate, known as the Central Bank Rate (CBR), was raised several times, peaking at 13 per cent before being marginally reduced to 12.75 per cent last month.

This adjustment followed improvements in the exchange rate and a reduction in inflation, prompting the CBK to signal a potential downward trend in interest rates from now on.

However, the previous hikes in the CBR have already pushed commercial bank lending rates above 20 per cent.

At the same time, interest rates on government securities, including Treasury bills and bonds, have also surged, with many now offering returns in the high teens.