Economy

Kenya Eurobond yields in mixed performance

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National Treasury Cabinet Secretary Ukur Yatani during the launch of Economic Survey Report 2021 on September 9, 2021. NMG PHOTO

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Summary

  • Yields on the shorter duration Eurobonds have edged downwards since January, while those on the longer issues maturing in more than 10 years have gone up.
  • Bond yields in the secondary market rise when risk sentiment goes up, and are matched with a fall in the price of the paper.
  • This means that investors are willing to offer their bonds at a discount to secure buyers.

Yields on Kenya’s $6.1 billion (Sh671 billion) Eurobonds trading on the Irish and London stock markets have shown mixed movement in the nine months to September, reflecting the economic uncertainty caused by Covid-19 and concerns over high public debt.

Yields on the shorter duration Eurobonds have edged downwards since January, while those on the longer issues maturing in more than 10 years have gone up.

Bond yields in the secondary market rise when risk sentiment goes up, and are matched with a fall in the price of the paper. This means that investors are willing to offer their bonds at a discount to secure buyers.

On the other hand, yields fall when prices go up, showing that investors are demanding a premium to let go of their bonds due to lower risk sentiment which means new issuances of similar tenor would pay much less in interest.

In the Kenyan Eurobonds, the 10-year paper maturing in 2024 has seen its yield fall to 3.09 percent from 3.92 in January, while that of the seven-year bond maturing in 2027 has fallen to 4.73 percent from 4.86 in the period.

Also down is the yield on the 10-year bond that matures in 2028, by 19 basis points to 5.03 percent. The 13-year bond sold in June this year at 6.3 percent has also seen its secondary market yield fall to 6.09 percent.

On the other hand, the 12 and 30-year bonds that are due in 2032 and 2048 respectively have recorded an increase in yields, by 29 and 16 basis points respectively to 6.14 percent and 7.2 percent respectively.

Kenya’s economy, which contracted by 0.3 percent last year, has been showing good signs of recovery this year, with some key indicators such as the stock market, PMI, trade data, and corporate earnings on the up.

However, concerns remain over the relatively slow pace of deployment of Covid vaccines, which are key in allowing the full reopening of the economy.

At the same time, the high public debt remains a concern, with Kenya having sought some repayment relief from bilateral lenders to ease the balance of payment pressure.