Capital Markets

Bond turnover at NSE rises 59pc in first half

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A securities trader at Nairobi Securities Exchange (NSE) trading floor at the Exchange building in Nairobi on August 26, 2020. FILE PHOTO | NMG

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Summary

  • Market data from the exchange shows that investors traded bonds worth Sh469.7 billion in the six months to June compared to Sh294.6 billion in the first half of last year, and are on pace to hit a new record high this year.
  • The turnover was also helped by a liquid money market in the period — particularly in the second quarter of the year — which was largely being directed into government securities both in primary auctions and through the secondary market at the NSE.
  • Since the start of the Covid-19 pandemic, bonds market has seen higher activity due to investor flight to safer haven investment classes, at a time when equities and property have been hit hard by lower economic activity.

The traded value of bonds at the Nairobi Securities Exchange (NSE) in the first half of the year outpaced that of the corresponding period in 2020 by 59 percent as the fixed income segment continued to raise significant demand from investors looking for low-risk, stable returns in a tough economy.

Market data from the exchange shows that investors traded bonds worth Sh469.7 billion in the six months to June compared to Sh294.6 billion in the first half of last year, and are on pace to hit a new record high this year.

The turnover was also helped by a liquid money market in the period — particularly in the second quarter of the year — which was largely being directed into government securities both in primary auctions and through the secondary market at the NSE.

Since the start of the Covid-19 pandemic, bonds market has seen higher activity due to investor flight to safer haven investment classes, at a time when equities and property have been hit hard by lower economic activity.

Last year, the bonds market returned a record turnover of Sh691 billion, which represented a six percent increase compared to 2019’s turnover of Sh651 billion.

At the same time, equities turnover fell by three percent to Sh148 billion from Sh153 billion in 2019, reflecting the lower appetite for shares at the time when prices remained depressed.

The bulk of the activity in the bonds market has traditionally been driven by banks and pension funds, which together hold 81.9 percent of the outstanding stock of the government’s domestic debt.

In the past year, however, retail investors comprising savings and credit cooperatives, listed and private companies, self-help groups, educational institutions, religious institutions and individuals have raised their holdings of the debt significantly, many of them through the secondary market at the NSE.

Their share of the government debt — which stood at Sh3.7 trillion at the end of June—rose from 4.32 percent in June 2020 to 5.97 per cent at the end of last month, which was equivalent to an increase of Sh83.4 billion.