LOW YIELDS

Dull moment for Kenya’s Eurobond in international market

In Summary

Yields on Kenya’s Eurobond haS been on a downward trend, moving from a high of 7.5 per cent on January 10 to the current 5.2 per cent, trailing that of Ghana and Angola

Treasury officials led by Cabinet Secretary Henry Rotich during an announcement on a new $2 billion (Sh203billion) Eurobond transaction, February 22, 2018. /TREASURY
Treasury officials led by Cabinet Secretary Henry Rotich during an announcement on a new $2 billion (Sh203billion) Eurobond transaction, February 22, 2018. /TREASURY

Recent arrests at Treasury and global micro economics took toll on Kenya’s inaugural Eurobond issued in 2014, with yields dropping further by 0.7 per cent.

Weekly bulletin by the Central Bank of Kenya showed yields on Kenya’s 10-year Eurobond at 5.2 per cent from 5.9 per cent last week, attributed to mistrust by foreign investors and increased demand for emerging market fixed-income securities.

The US put a pause on its three-year cycle of tightening its monetary policy, having lowered the Fed Rate in July for the first time since 2008 to a range of two per cent – 2.25 per cent, which has made returns from fixed income securities more attractive.

Yields on Kenya’s Eurobond have been on a downward trend, moving from a high of 7.5 per cent on January 10 to the current 5.2 per cent, trailing that of Ghana and Angola.

The poor performance of Kenya’s debt in the international holds the country’s future prospects to raise cheaper funds from foreign investors to fund its budget.

In May, Kenya floated its planned third Eurobond issue, raising Sh210 billion ($2.1 billion) in two tranches of seven and 12 years priced at rate seven and eight per cent respectively.

Kenya’s external debt position has grown from Sh2.6 trillion in September last year to 3.02 trillion, pushing up the the country’s total public debt.

According to CBK, the country’s public debt expanded by 15.2 per cent to hit Sh5.89 trillion from Sh5.039 trillion in June 2018, as Treasury plunged into the credit market to fund infrastructural projects.

The poor performance of Kenya’s capital market extended to Nairobi Securities Exchange (NSE) where NSE 20 index which captures movement of select blue chip stock almost fell outside 2600 points, a decade low.

The NASI, NSE 25 and NSE 20 share price indices declined by 0.34 percent, 0.64 percent and 1.69 percent, respectively.

 

The decline in NASI was largely due to losses recorded in large-cap counters such as Bamburi and NIC Group, which recorded losses of 7.2 per cent and 1.7 per cent respectively.

Similarly, market capitalization, equity turnover and volume of shares traded declined by 0.34 percent, 8.13 percent and 19.40 percent, respectively, during the week ending August 1

For this week, equities turnover decreased by 8.9 per cent to $21.3 million, from $23.4 million the previous week, bringing the year to date (YTD) turnover to $882.8 million.

Foreign investors were net buyers for the week, with a net buying position of $2.1 million, as compared to last week’s net selling position of $4.3 million.

‘’With the market trading at valuations below the historical average, we believe there is value in the market,’’ market analysts at Cytonn Investment said.

Trading activity in the domestic secondary bond market increased by 24.13 per cent during the week ended Friday.