International investors have cut Kenya’s sovereign risk rating sharply, lowering their yield demands on outstanding Eurobonds by an average of 5.86 percentage points in the last month.
Kenya’s peaceful conduct of its General Elections has helped cut the political risk that had partly driven the yield jump in July, while fiscal pressure is also expected to ease on the back of falling crude prices and the possibility of resumption of grain exports from Ukraine and Russia.
Secondary market yields on bonds normally go up when investors attach higher risk perception to an issuer, with bond prices going the other way as more people look to offload the papers.
These yields are also a guide to an issuer on the rate they can expect to pay should they float a new paper.
In mid-July, yields on Kenya’s outstanding Eurobonds that trade at the London and Irish stock exchanges rose to all-time highs of between 15 percent and 22 percent, forcing the government to shelve plans for a new issuance over what it termed as "unfavourable market conditions".
These yields have since then retreated to between 10.2 percent and 13 percent.
“In the international market, yields on Kenya’s Eurobonds declined by an average of 248.5 basis points, with the largest fall in yields (313.6 basis points) for the 2024 maturity,” said the Central Bank of Kenya (CBK) in its weekly bulletin released last Friday.
The highest yield is on the seven-year bond maturing in 2027 at 13 percent, while the 13-year paper maturing in 2034 is the lowest at 10.25 percent.
In mid-July, it was the 10-year paper maturing in June 2024 that carried the highest yield at 22.04 percent, but this has now retreated to 12.19 percent.
Lower rate demands by investors bode well for the incoming administration, which is inheriting a budget that carries a deficit of Sh845 billion for the year ending June 2023.
To fund this budget hole, the Treasury is expected to borrow Sh280 billion from the external market, which will come from concessional loans from the International Monetary Fund (IMF) and World Bank as well as commercial borrowing.