Hard times push retail investors off securities

The rising cost of living has pushed retail investors out of Treasury securities, putting institutional buyers in control of the bonds market despite government efforts to attract small investors.

Data from the Central Bank of Kenya indicates that individual investors have reduced their holding of government securities by as much as two-thirds now compared to the same time last year despite state borrowing increasing by 58 per cent from Sh438 billion to the current Sh693 billion.

Individual investors are currently holding bonds worth Sh11 billion compared to the Sh29 billion they controlled last April.

Commercial Banks still hold the biggest chunk of government securities collectively holding bonds and bills worth Sh375 billion.

Bond offers

This indicates that the institutional investors including commercial banks, pension funds and insurance companies have taken up most of the recent multi-billion treasury bond offers.

Investment managers attribute the low participation by individual investors to the thin margins that these securities promise, noting that the institutional investors often buy into government securities to protect their capital.

“In 2010, the yields were generally very low and my belief is that most may have shunned this market or reduced their exposure,” said Elizabeth Irungu, an investment manager at Stanbic Investments Management Services.

CBK had moved to slash market rates by cutting the indicative lending rates from 7 to 5.75 per cent in three separate actions in 2010, a move that saw the government’s borrowing rates on the 91-day bill fall to 1.46 per cent in July.

This meant that bonds gained in value over the period and most investors exited their positions to take profits, and have since found it unattractive to re-direct their funds in bidding on government paper as yields remained low.

The biggest issues from the CBK include the nine-year infrastructure bond floated in August last year, paying a six per cent coupon--a bargain for Treasury, considering that a 5-year bond issued in January 2011 is paying 7.6 per cent.

Ms Irungu says large investors have continued to tighten their grip on the new offers from Treasury as individual investors select their investments in the chase for big returns.

Amish Gupta, an investment banker at Standard Investment Bank, says that CBK has not done enough to educate individual investors on viability of government securities as assets.

“Unlike investment in shares today, CBK Bonds have never been as easily accessible by the wider investor community. There has been a vast difference between the number of CDS accounts at the NSE vis-à-vis the CBK,” said Mr Gupta.

mmichira@ke.nationmedia.com