Yields on T-bills attract foreign investors

The fixed income market is catching the eye of foreign investors who want to reap from the high yields on Treasury bills and bonds, money markets players say.

Fund managers and dealers said that bonds and bills offering as much as 20 per cent make a strong case for foreigners to put money in the local fixed income market compared to the international markets with single-digit returns.

Dry Associates managing director Jim Dry said that the double digit yields on government paper has caught the attention of investors from markets such as the UK, where similar securities fetch a fraction of what is available locally.

“We have been getting calls from London asking if they are permitted to buy some of these high yielding bonds,” said Mr Dry.

The 12-year infrastructure bond, which is offering a 12 per cent coupon has particularly been in focus, said Mr Dry.

Kenya Bond Traders Association chairman Fred Mweni said that most foreign investors coming to the local fixed securities market want to capitalise on the high market rates.

Mr Mweni said that the investors would for example, prefer to buy a one-year government bond offering a 21.08 per cent coupon as opposed to locking their money in a 10-year UK bond, at 2.6 per cent.

Foreign investors, however, face the risk in depreciation of the shilling, which could result in lower value of dollars or pounds per unit shilling although the current returns are more than enough to make up for the loss, said Mr Mweni.

“Currency fluctuations cannot be high enough to wipe out a 20 per cent return,” said Mr Mweni.

Analysts expect that the current interest rates cannot be sustained for long and if they fall, they will result in value of bonds and bills rising further, therefore, increasing their attractiveness.

“Current high interest rate environment presents an opportunity to lock in high yields and gain from capital appreciation that will result from the fall in rates,” said British American Asset Managers in their outlook last week.

The last 91-day Treasury bill fetched 19.332 per cent, which was a slight dip from the previous auction’s 19.807 per cent.

(READ: Wait for one year bond depresses T-bill auction)

The CBK is looking to raise Sh27.7 billion. The one-year bond targets Sh10 billion while Sh17.7 billion is expected to come from the re-opening of the infrastructure bond, which analysts expect will be oversubscribed.

“We feel an oversubscription is imminent as banks will be beefing up their trading books,” said a Fixed Income report by Sterling Capital.