The Treasury, in a lately rare event, missed the Sh50 billion target for the 10-year bond issue whose sale closed at the end of last week, reflecting tightening liquidity conditions and the market adopting a wait-and-see attitude on the direction of interest rates.

Central Bank of Kenya (CBK) Friday said the bond raised Sh38.37 billion— a performance rate of 76.75 percent—out of which the government’s fiscal agent accepted Sh28.35 billion.

Investors in the bond will get a coupon of 12.28 percent, as the regulator went with the weighted average of accepted bonds.

This is a return to normal market practice after the previous longer-tenor issue, a 16-year infrastructure bond offer, saw CBK set a different coupon from what the successful bids had dictated despite the offer being market determined.

“Being the first primary auction in a post-rate cap repeal environment, the issue of pricing was expected to be a grey area. Thus, some of the investors chose to remain on the sidelines but we expect the outcome of this primary issue to provide anchor for future auctions,” said Genghis Capital senior analyst Churchill Ogutu.

“The pricing of last month’s primary sent mixed signals to the market. Ordinarily, market determined pricing has been a given to be the weighted average rate of accepted bids. This wasn’t the case in last month’s results as the eventual coupon was at a discount of the average accepted bids sending jumbled message in the market.”

With no matching bond maturities, however, the entire Sh28.35 billion CBK took up goes into government books as new borrowing, which should help further bridge the budget deficit.

The bond’s underperformance, however, bucked analysts’ expectations of an oversubscription, where demand was expected to come due to the relatively short tenor amid a shortage of such issues in recent months.

Projections made by various intermediaries including Sterling Capital, and AIB Capital had pointed to expectations of healthy demand for the paper.