Vibrant bond market lifts brokers’ earnings

The vibrant trading in bonds in the past eight months has seen stockbrokers grow their commissions more than three times over the period compared to last year and looks set to up the battle for fixed income traders.

Data from the Nairobi Stock Exchange (NSE) shows that trading in bonds stood at Sh361 billion in the eight months to August compared to Sh118 billion in the same period last year.

This saw brokers earn commissions of Sh145 million over the period compared to Sh47 million from the secondary bond market--trading of government and corporate bonds at the NSE.

The commissions are set at a maximum of 0.04 per cent of the traded amount, but clients can negotiate for lower commissions.

Much of the growth in the secondary bond market emerged from May on increased investor interest as returns from the sale of government securities at the primary market dropped to record levels and equities began to post sluggish returns, according to analysts at Standard Investment Bank.  

“There has been increased investor appetite in the secondary bond market since it’s offering better yields than the equities and primary bond market,” said an investor brief from Standard Investment Bank.

The double digit growth that gripped the bourse in the first five months of the year has since reversed, triggering a shift in investors’ portfolio with the secondary bond market a major beneficiary.

The buoyant trading in bonds combined with trading in shares in the first half of the year has helped stockbrokers and investment bankers move to the profit zone after announcing losses last year.

In 2009, the market intermediaries reported a combined loss of Sh275 million.

No broker announced losses in the six months to June 2010.

The vibrant trading in bonds is set to lift the earnings of firms such as Kestrel Capital and Standard Investment Bank, which have in recent years beefed up their fixed income trading desks that have made them the biggest players in the bonds market.

This business segment is becoming important for the capital market intermediaries now that the equities market is recording sluggish trading.

Interest in shares has waned since June on profit taking, mostly from foreign investors who had bought undervalued shares in the five months of the year, and sluggish movement of shares that has kept away speculators. 

The benchmark NSE-20 index—which tracks the performance of blue chip firms— has gained 2.9 per cent since July.