Capital Markets

Bond transactions rise to record Sh956 billion


Nairobi Securities Exchange trading floor. FILE PHOTO | NMG

The flight to fixed-income investments in the Covid-19 pandemic period swelled transactions in bonds at the Nairobi Securities Exchange (NSE) to a record Sh956 billion last year, nearly seven times the value of equities traded on the bourse.

Both retail and institutional investors have been seeking the higher guaranteed returns available from government securities as earnings from other asset classes such as equities and cash deposits remain low, hence the huge spike in bonds turnover.

The State’s high appetite for debt has also fuelled the higher trading activity on bonds due to the large amount of new issuances being introduced into the market, raising fears that the private sector is being starved of credit. In the 2021 calendar year, the Treasury sold a net of Sh771.3 billion in new bonds that were subsequently traded actively at the bourse.

“The bonds market outpaced the 2020 numbers by 38.44 percent to Sh956 billion from Sh691 billion registered in 2020; this is a record high in trading activity recorded … Equity turnover declined by 7.58 percent to Sh137 billion from Sh148 billion posted the previous year,” said the NSE.

The rise in bond turnover generated more commissions for the bourse operator and the stockbrokers who handle most of the trades in the debt securities. The bonds market was also seen as a haven for investor cash after the pandemic hit the country and contracted the economy by 0.3 percent in 2020.

Retail traders in government bonds — comprising saccos, listed and private companies, self-help groups, educational institutions, religious institutions and individuals — raised their holdings of the securities by Sh99 billion to Sh248.4 billion during the year.

Equities, on the other hand, became riskier and less attractive in investors’ eyes, as listed firms recorded diminished profits and cut dividend payouts to preserve cash in a difficult operating environment.

The shares market has thus struggled to break free of the bear run that has kept prices relatively low since early 2015, with traded volumes lagging as a result.

While the bonds market has set new annual traded volume records in each of the last four years, the record annual turnover for equities remains the Sh215.7 billion traded in 2014.