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CBK 5 EAR BOND NOW SELLING
MatataMingi
#1 Posted : Wednesday, November 17, 2010 4:46:49 PM
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Hi Guys,

New 5 year bond issue FXD 2/2010/5 is now on sale.

Interest rates for Bills & Bonds are going up.

10 Year Bonds

The 10 year bond sold on 26 April had a coupon rate of 8.79 and yield of 8.633.

The 10 year bond sold recently on 1 November had a coupon rate of 9.307 and a yield of 8.646.

5 Year Bond

The last 5 year bond sold on 24 May had a coupon rate of 6.951 and a yield of 6.829

So, good guys, what do you think the result of this new bond will be ?

I think the coupon/yield will be around 7.5/8 %

Any thoughts ?

Thanks
Scooby
#2 Posted : Wednesday, November 17, 2010 10:02:31 PM
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MatataMingi,

Am not sure if the coupon and/or yield might rise up to that level.

I've noticed that there is usually a greater demand for five year treasury bonds than for ten year bonds.

Also, there is too much excess liquidity in the market.

Regards
maka
#3 Posted : Thursday, November 18, 2010 10:53:34 AM
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Il go with scooby on this thez no way it can go that high though some optimistic bank dealers have hinted that they can even enter at levels of 7.00% my take between 6 and 6.25...
possunt quia posse videntur
MatataMingi
#4 Posted : Thursday, November 18, 2010 12:12:24 PM
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Location: Where everyone knows you
Scooby
I agree with you regarding the demand between the 5 & 10 year bonds.
However, GBK interest rates are creeping up, albeit very slowly.
Therefore, I think if the 5 year bond in May fetched a coupon rate of 6.951, this issue will fetch over 7 %

Maka,
Thanks for your input. I think I will apply at 7.25 and see what happens.

Regards
maka
#5 Posted : Thursday, November 18, 2010 3:53:10 PM
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Lets wait for the results after the primary but my take is 7% will be too aggressive there is a lot of liqudity and a 5 year people is usually favourable for mist guys coz of its tenor...
possunt quia posse videntur
Scooby
#6 Posted : Thursday, November 18, 2010 7:07:18 PM
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MatataMingi,

Are you applying for the bond in your own capacity or for the company you are working for?

If its the former, I would recommend that you make a non-competitive bid should you want to have a greater success in getting it.

Regards
MatataMingi
#7 Posted : Friday, November 19, 2010 9:22:52 AM
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Maka,

You seem to be spot on your estimate of 6 to 6.5

A Reuters poll of 10 fixed income traders agree with you. However they also underestimated on the last 10 year bond with a median of 8.23. The result came in at 8.646 with a coupon of 9.307.
See the poll results below

5 YEAR
Commercial Bank of Africa 5.75
Barclays Bank 5.75
Tsavo Securities 5.75
Equatorial Commercial Bank 5.85
Citi Group 5.95
African Alliance Kenya 6.25
Sterling Investment Bank 6.25
CFC Stanbic Bank 6.25
Kenya Commercial Bank 6.25
Co-op Bank 6.60

Median 6.10 Mean 6.065

I think it will come in at around 6.4
I dont want to tie my money for 5 years at this price. I will look for something else.

MatataMingi
#8 Posted : Friday, November 19, 2010 9:54:58 AM
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Scooby,

I am doing this for myself.
Non competitive bids are always accepted by CBK, as these only account for 5 to 15 % of accepted bids. CBK always takes all of these. Then they start with the lowest competitive bid and go up untill they reach there target. It also depends on how hungry they are.
The rate for the non competitive bids is the average of all the competitive bids accepted.

I think for this issue the average will be around 6.4

Regards
maka
#9 Posted : Friday, November 19, 2010 12:28:45 PM
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If am not wrong the non competitive bid is given at coupon...
possunt quia posse videntur
Scooby
#10 Posted : Friday, November 19, 2010 11:38:12 PM
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@ MatataMingi, All the best with your competitive bid! Let us know how it went...

@ Maka, with the current auction method (am not sure if its the dutch method or not), the average rate is the "market" determined coupon rate for the bond. It will also be the yield for that bond i.e. issued at par.

So, should you bid at a lower rate than the average rate, you would have bought the bond at a premium.



Scubidu
#11 Posted : Saturday, November 20, 2010 12:40:36 PM
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Posts: 700
Location: Nairobi
Scooby wrote:
@ MatataMingi, All the best with your competitive bid! Let us know how it went...

@ Maka, with the current auction method (am not sure if its the dutch method or not), the average rate is the "market" determined coupon rate for the bond. It will also be the yield for that bond i.e. issued at par.

So, should you bid at a lower rate than the average rate, you would have bought the bond at a premium.




@scooby. I don't think it's a dutch auction but maybe some variation of one. Here it seems there's a disincentive to bid low as you mentioned. Is there a cut-off rate feature within a dutch auction?

i had briefly mentioned it another post. see below.

http://www.wazua.co.ke/f....aspx?g=posts&t=6659
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
maka
#12 Posted : Tuesday, November 23, 2010 5:07:34 PM
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by tomorrow evening will have the results or part of it...
possunt quia posse videntur
maka
#13 Posted : Thursday, November 25, 2010 12:17:49 PM
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Joined: 4/22/2010
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Bids received amounted to over 18 Billion accepted was close to 11.97 million,coupon at 6.07 weighted average at 7.03...or thereabout,still shows there is a lot of liquidity in the economy.
possunt quia posse videntur
Scubidu
#14 Posted : Thursday, November 25, 2010 4:38:45 PM
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@scooby. @maka. Did you notice something different about this auction...specifically the coupon rate is equal to the weighted average on success bids. These guys have changed the rules ...
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
MatataMingi
#15 Posted : Friday, November 26, 2010 11:29:56 AM
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@ Maka

Weighted average rate of accepted bids was 6.671, which is also the coupon rate!!!! Cut of rate was 7.09.

I put in 3 bids at 7, 7.25 & 7.5. Therefore the bid at 7 was accepted.
MatataMingi
#16 Posted : Friday, November 26, 2010 11:48:15 AM
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@Scubidu

Good point. I think this is the first time that the coupon rate and the weighted average rate is the same.

CBK started changing rules from early this year. Before that they always published a coupon rate before the auction. This gave you a better idea of what rate to bid at.
Now it is what they call a "market determined coupon rate"
Therefore now your bid is really a shot in the dark. I bid at a rate that is acceptable to me. Wheather it is successful is another thing.
In this auction the lowest bid was 4.750 and the highest 10.740

Regards
maka
#17 Posted : Friday, November 26, 2010 1:10:16 PM
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@ scooby the market weighted average was 7.078% which is the one that is close to the cut off rate but the market weighted average for the accepted bids is the one which is 6.671% and same as the coupon rate...
possunt quia posse videntur
Scubidu
#18 Posted : Friday, November 26, 2010 4:01:15 PM
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@matataMingi. @Maka. Market determined or not this is the first time the coupon is equal to market rate on successful bids, which to the best of my knowledge means that they've changed their methodology for deriving the coupon rate.

When was the last time anyone saw a market determined coupon issued at par?
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
Scooby
#19 Posted : Saturday, November 27, 2010 12:06:42 AM
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Joined: 9/2/2006
Posts: 121
Hi all,

Let me know if my understanding of the auction process makes sense.

The auction is done in two phases. The first phase is used to determine the first set of bids that they will accept and/or reject. That would explain the cut off rate of 7.090% and the average rate of the bids that were successful in the first round (7.078%).

Thereafter, they will perform a real dutch auction, with the lowest bids selected first (one for 4.75%)...then will selected bids that would get CBK to the Kshs. 12 billion amount they are seeking.

The weighted average rate for all the successful bids (6.691%) would then be the market determined rate.

This is more confusing than the earlier versions of the auction process!!

Regards
Scubidu
#20 Posted : Saturday, November 27, 2010 4:37:27 PM
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Posts: 700
Location: Nairobi
@scooby. @all. Ideally if they use the real dutch the guys who bid at 4.75% should ideally be awarded a rate of 6.671% but this isn't the case to best of my knowledge.

Then again if they are using the real dutch then what's the purpose of the cut-off rate?

The coupon has always been close to the market average rate, but this time they've found a formula to counter aggressive bidding.

It seems to be some hybrid system and they've set the precedent that all future bonds in primaries will be issued at par (if the market determined coupon=average rate on successful bids).
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden
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