Bond sales at the NSE fall by 62pc in July due to lower liquidity

Bond turnover in the secondary market on the Nairobi Securities Exchange (NSE) fell by 62 per cent in July compared to June due to lower liquidity in the money markets and investors pushing funds into primary market securities.

Data compiled by Kestrel Capital shows that the turnover for the month stood at Sh21.3 billion compared to the Sh55.9 billion worth of trades recorded in June.

The dip in July bond turnover comes against a higher performance in May and June when it stood at Sh55.3 and Sh55.9 billion respectively. As a result of the heightened trading in May and June, the half-year 2016 bonds market turnover outperformed the turnover of a similar period in 2015 by 39 per cent, coming in at Sh263.2 billion versus Sh213.1 billion.

Heightened trading

“Bond turnover at the NSE tanked 62 per cent in July 2016 to Sh21.3 billion ($209.4 million) from Sh55.3 billion the month prior. The turnover volumes were largely spread amongst two-year, five-year and 10-year tenors. Corporate bond turnover dipped marginally to Sh28.4 million ($280,000) during the month of July driven by book transfers by fund managers,” said Kestrel Capital in their July fixed-income analysis.

Investment firm Cytonn Investments attributed the lower secondary market turnover to tighter liquidity levels in the market, with the month seeing a rise in the average interbank rate to 4.8 per cent from 3.9 per cent at the end of June.

“This was despite a net liquidity injection of Sh4.7 billion, which was as a result of government payments of Sh102.2 billion. The increase (in interbank rate) was as a result of the central bank mopping up liquidity from the money market through repos worth Sh52.9 billion, which resulted in low liquidity among banks,” said Cytonn in a market report.

READ: Bonds turnover up 39pc to Sh263bn

On the other hand, primary issues of Treasury bills and bonds took up majority of the available funds for investment during the month, with activity especially high on the 182-day Treasury bill and the five-year Treasury bond.

The Kestrel Capital analysis shows that in total, the government accepted Sh91 billion worth of primary securities out of the Sh110 billion they had offered, with Sh33.5 billion being in the form of Treasury bonds and Sh57.5 billion in Treasury bills.

The month also saw redemptions worth Sh75 billion, some of which were rolled over in the new debt.

Interest rates on the primary issues climbed progressively during the month, attracting investors who were looking to take advantage of the government’s relatively high borrowing target for the current fiscal year.

On the 91-day paper, the rate rose to 8.3 per cent from seven per cent at the beginning of July, while the rates on the 182-day and 364-day paper rose from 9.4 and 10.5 per cent respectively to 10.7 and 11.4 per cent in July.