Bonds turnover declines as investors go for primary market auctions

Nairobi Securities Exchange trading floor. FILE PHOTO | NMG

Bonds turnover at the Nairobi Securities Exchange (NSE) fell by 18 percent in May as investors concentrated on purchasing new securities at the primary market, hitting stockbroker earnings at a time when equities trades remain subdued.

NSE data for May shows that investors traded Sh58.6 billion worth of bonds, down from Sh71.4 billion in April.

Stockbrokers earn a commission of 0.03 percent per bond trade. With equities turnover averaging below Sh10 billion per month this year, intermediaries who have strong bonds trading desks have been in a better position to weather the market downturn.

Bonds turnover has generally been high in the market in recent months due to a preference by investors for risk-free government securities as a viable alternative for underperforming equities, and also as a hedge against the economic uncertainty, which has affected returns from most other asset classes.

While the market has generally held high liquidity to support the bonds trading, this eased last month as the government mopped up cash by raising Sh49 billion from the market in primary sales.

“This decline (in May secondary market turnover) is explained by low market liquidity levels as well as the primary and tap sale debt issues that reduced market liquidity levels,” said Sterling Capital in its June 2022 fixed income report.

Liquidity is expected to become constrained further this month due to the sale of an infrastructure bond targeting Sh75 billion. The tax-free infrastructure papers have proven popular with investors in recent issuances, raising record amounts of bids, but have had the effect of extracting liquidity from the market which negatively hits activity in the secondary market.

In the equities market last month, traded turnover stood at Sh10.8 billion, up from Sh5.9 billion in April.

It averaged Sh9.3 billion per month in the first quarter of the year, well below the average for bonds trades which stood at Sh63.7 billion in the period.

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