Investors in February’s infrastructure bond minted Sh2.7 billion in profits across seven months by selling the paper in the secondary market, picking up a premium driven by demand from buyers.
The paper, which offers the highest return to investors in 2024 with an 18.4607 percent coupon registered 7,936 trades on the Nairobi Securities Exchange (NSE) in the period to the end of September for a consideration of Sh35.2 billion against a Sh32.5 billion face value.
This means holders of the tax-free bond who opted to sell the paper generated Sh2.7 billion in profits from their initial investment according to new disclosures from the Capital Markets Authority (CMA).
Investors who missed the paper during its primary offer by the Central Bank of Kenya (CBK) have turned to the secondary market to own the security which boasts the highest return of any State security amid falling interest rates on recent issues.
Interest in the paper has seen the bond fetch a premium on the NSE for most of the year as investors push to hold the highest grossing security.
Bonds trading data from the NSE shows the price for the 8.5-year infrastructure bond (IFB) sold in February has reached Sh112.96 per unit of Sh100 which signals the underlying high demand from investors.
Investors selling bonds in the secondary market do it at either a profit or a loss (premium or discount) with a premium price mirroring the paper’s demand from buyers.
The CBK yielded to investor pressure to offer the 18.4607 percent record rate of return in the paper’s primary issue in February as it sought to attract foreign inflows into the country at a time when the economy was reeling from high inflation and exchange rate volatility.
Investor bids on the paper topped Sh288.6 billion against just Sh70 billion on offer while the market weighted rate for competitive bids was pushed to 18.6218 percent.
CBK took bids totalling Sh240.9 billion locking out buyers with interests surpassing Sh47 billion.
Interest on the February IFB is expected to hold higher as yields on new issuances drop in line with the easing in local interest rates.
Yields on shorter dated government securities of Treasury bills have for instance fallen for 13 consecutive weeks in an environment underpinned by low inflation and stability in the exchange rate.
Inflation fell to just 2.7 percent in October while the Kenya shilling has traded in a tight range of Sh129.18 and Sh129.2 in recent weeks.
CBK has on its part moved to nudge interest rates on both government securities and commercial bank lending rates lower by cutting its benchmark lending rate to 12 percent last month from a high of 13 percent in February.
The government is targeting to drive interest rates further down as it seeks to tap a Sh193.9 billion ($1.5 billion) commercial loan from the United Arab Emirates (UAE), which would see it further trim the net domestic borrowing target for the 2024/25 fiscal year.