Capital Markets

NSE secondary bonds turnover hits 6-week high on liquid market

nse

Nairobi Securities Exchange staff monitors trading at the bourse. PHOTO | FILE

Turnover in the secondary bonds market at the Nairobi Securities Exchange (NSE) has improved significantly over the past week reaping the benefit of a liquid money market.

Data from the exchange shows turnover for last week stood at a six week high of Sh10.07 billion, jumping from the turnover of Sh476.9 million recorded during the week ending January 8.

The bonds market is dominated by banks and other financial institutions, meaning that it tends to feel the effect of an illiquid market to a greater extent than the equities market.

Analysts say that the resurgence in the secondary bonds market is likely to hold through this week in light of the current liquidity position of the market.

“We expect trading activity to hold its momentum in the new week as it garners support from improved levels of liquidity in the money market,” said Genghis Capital in a fixed income report.

The bulk of activity last week was concentrated on the one-year bond issued in October 2015. The bond saw 23 trades worth a total of Sh7.36 billion — accounting for 73 per cent of the week’s turnover — at average yield of 14.35 per cent.

Investors have been eyeing the shorter-tenor government securities as they anticipate a general rise in interest rates.

Central Bank said in its weekly bulletin that net government payments have contributed to the prevailing liquidity, which has seen the interbank rate fall to a one month low of 4.6 per cent.

“The money market was relatively liquid during the week ending January 13, 2016 supported by net government payments. CBK rolled over Sh9 billion out of the Sh11.4 billion of the reverse repo maturing during the week to the interbank market,” said CBK in the weekly bulletin.

While the market has been liquid, some dealers have said the liquidity has been skewed in favour of the larger banks, which have seen their deposits rising as customers flee to safety in the wake of Imperial Bank going into statutory administration.

The collapse of the bank saw CBK embark on a sustained run of net liquidity injection into the market amounting to Sh76.6 billion during the last 10 weeks of 2015, in turn offering support to the smaller banks.

In the past two weeks, however, CBK has made net liquidity withdrawals amounting to Sh17.9 billion mainly through term auction deposits, repos and tax transfers from banks, indicating that the regulator is now more comfortable with the liquidity distribution in the market.