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Markets

Eurobond yield fall signals cheaper credit for Kenya

A man counts bank notes: Kenya issued the bond in 2014 at a coupon rate of 6.785 per cent for the 10-year and 5.875 per cent for the five year tranche. FILE PHOTO |  FREDRICK  ONYANGO
A man counts bank notes: Kenya issued the bond in 2014 at a coupon rate of 6.785 per cent for the 10-year and 5.875 per cent for the five year tranche. FILE PHOTO | FREDRICK ONYANGO  

Secondary market yields on Kenya’s Eurobond have fallen below the debt’s coupon rate, meaning that the country could get cheaper debt should it return to the market.

The lower yields also show long-term investor confidence in the economy, which would make it easier to attract foreign investment. The yield on the $500 million five-year tranche now stands at 4.1 per cent, while the 10-year $1.5 billion paper is offering a yield of 6.5 per cent.

Kenya issued the bond in 2014 at a coupon rate of 6.785 per cent for the 10-year and 5.875 per cent for the five year tranche.

“Since the mid-January 2016 peak, yields on the Kenya Eurobonds have declined by 4.9 percentage points and 3.2 percentage points, respectively, for the five-year and 10-year Eurobonds due to stable macroeconomic conditions,” says Cytonn Investments in a fixed income note.

“The declining Eurobond yields and Standard & Poor’s (S&P) having maintained Kenya’s foreign and local currency sovereign credit ratings for the short and long term at “B+/B”, respectively, are indications that Kenya remains stable and hence an attractive investment destination.”

Kenya’s interest burden on the loan is, however, not affected by falling or rising yields, which are purely a factor of the secondary market between buyers and sellers.

The five-year and 10-year Eurobonds have 2.2 and 7.2 years to maturity respectively, meaning that the government may soon return to the market to seek more funds to roll over the debt and maturing syndicated loans.

Institutions seeking to borrow externally are set to enjoy lower rates since lenders price in line with prevailing sovereign debt rates that measure risk.

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