Capital Markets

Kenya enters phase of costly Eurobond


Central Bank of Kenya. FILE PHOTO | NMG

Yields on Kenya’s Eurobonds have risen sharply in the past few weeks, signalling the high finance cost the country faces if it were to sell a new international bond.

The yield on the 10-year bond due in 2024 jumped to 8.55 percent on April 27 from 7.18 percent on April 20, according to the latest data from the Central Bank of Kenya.

That on the 10-year bond due in 2028 increased to 9.76 percent from 8.92 percent over the same period.

The yield on the 12-year bond due in 2032 jumped to 10.14 percent from 9.43 percent.

The rise of the yield — which measures the return an investor gets from buying the fixed income securities — comes as major central banks, including the Federal Reserve of the US are expected to raise interest rates significantly to dampen inflation.

Investors typically demand higher returns from debt of emerging and frontier countries such as Kenya which are seen as relatively high-risk compared to obligations of the US and European governments.

The jump in Kenya’s Eurobond yields also came amid reports of dollar shortages in the country, delaying transactions and adding to increased credit risk perception.

The Kenyan bankers' lobby, Kenya Bankers Association (KBA), sought to allay fears that dollar shortages were systemic and that this was only the case among certain banks.

The yields now seen in the secondary market, which are much higher than the interest rates set when the bonds were issued, are an indication on the current pricing of the country’s debt.

Kenya has been planning on issuing a Eurobond this year to fill a wide budget deficit.

A $1 billion (Sh115 billion) debt was to be sold by June, according to media reports.

Four Eurobonds

Investors are seeking better returns in the US where the Federal Reserve raised interest rates by between 0.25 and 0.5 percent and laid out an aggressive plan to increase them further to deal with inflation that has jumped to 6.6 percent.

Kenya has an outstanding portfolio of four Eurobonds worth a total of $7.1 billion (Sh824 billion), which are traded on the Irish and London stock exchanges.

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