Kenya Cuts Bond Sale to 47% of Bids as Yields Soar on Prices

Kenya, East Africa’s biggest economy, cut a sale of bonds to 47 percent of the amount bid after inflation at a 25-month high sent yields up as much as 4.8 percentage points compared with the last auction.

The Central Bank of Kenya accepted 9 billion shillings ($99 million) of bids for 2-, 5-, and 20-year debt on offer, it said in an e-mailed statement from Nairobi yesterday. It received 19 billion shillings of bids.

The bank accepted fewer bids with “the objective of seeking to minimize the cost of contracting debt,” it said.

Yields in Kenya, the world’s largest exporter of black tea, are soaring and the shilling has weakened to a 17-year low as the country grapples with a fourfold increase in inflation since October.

For the reopened 6.671 percent five-year notes, the yield climbed to 12.529 percent. That compares with 7.636 percent at the auction of similar-maturity debt held on Jan. 26.

The yield on the re-opened 10 percent 20-year debt increased to 14.822 percent today from 13.974 percent at the auction held on May 25, with 861.1 million shillings allocated. Investors bid for 4.73 billion shillings of the bonds.

The yield on the re-opened 7.439 percent two-year debt rose to 12.442 percent compared with 10.387 percent at the auction held on May 25. The bank allocated 6.7 billion shillings.

Market Tightening

The central bank kept three-month borrowing costs from rising above a nine-year high at its auction last week compared with the previous week’s sale by limiting issuance to the lowest in at least three months. The bank accepted 49 percent of the 13.7 billion shillings of bids at its June 16 auction. The yield fell one basis point from the previous sale to 9.006 percent, the bank’s data show.

“The recent trend of rising yields is being reflected on the long-term securities, with investors seeking to get higher returns especially at a time when the money market is tightening,” Karanja Ndung’u, a fixed-income dealer at Nairobi-based Tsavo Securities Ltd., said by phone today.

The inflation rate in East Africa’s biggest economy jumped to 13 percent in May. Price growth is expected to advance further this year as dry weather curbs agricultural production, central bank Governor Njuguna Ndung’u said on June 6.

Kenya is feeling the effects of rising global commodity prices as a drought forces the country to import more food than it exports, according to Peter Kegode, a Nairobi-based independent economist who advises agricultural associations.

Rate, Shilling

Kenya’s monetary policy committee raised the benchmark interest rate by a quarter percentage point to 6.25 percent and the cash reserve ratio by a quarter of a percentage point to 4.75 percent, the central bank said on May 31.

Kenya’s government plans to borrow 119 billion shillings on the domestic market in the fiscal year through June 2012, Finance Minister Uhuru Kenyatta said in his annual budget speech on June 8.

The shilling appreciated for a second day, gaining 0.5 percent to 90.4 per dollar by 11:02 a.m. in Nairobi.

Ndung’u will address a media briefing today about developments in the foreign-exchange market, said Samson Burgei, head of communications at the bank. The press conference will start at 3 p.m. in Nairobi, the capital, Burgei said by phone.