Capital Markets

NSE December bond turnover jumps to Sh22bn

Turnover in the secondary bonds market of the Nairobi Securities Exchange (NSE) has risen this month compared to November following improvement of liquidity and lower yields in the new Treasury bill market.

Trading statistics from the exchange show turnover for the first three weeks of December hit Sh22 billion, surpassing the full month total of Sh19 billion recorded in November when interest rates in the primary market were high.

Treasury bill rates had risen to 22 per cent in October in a surge that stretched into the first two weeks of November, but have now largely stabilised at the 9.9-12.5 per cent range.

READ: Investors demand higher interest for Treasury bills

“A liquid money market has provided support...light trading is (however) expected this week as we countdown to Christmas,” said Genghis Capital analysts in a fixed income market report.

Underlining the high liquidity in the market, the interbank rate is now at 4.7 per cent from 10.53 per cent a month ago, with the amounts being borrowed between banks on overnight basis in the past five weeks falling drastically.

The Central Bank of Kenya (CBK) has on the other hand injected up to Sh103.4 billion in liquidity through reverse repos since November, mainly to small banks given the liquidity has been skewed in favour of large lenders in the economy.

The total bond turnover for the year is unlikely though to reach last year’s tally of Sh506.05 billion despite of the increase in December activity.

Cumulative bond turnover for 2015 coming into December stood at Sh283 billion consistently holding below Sh30 billion per month since April, except in October when it saw a spike to Sh30 billion.

While investors had concentrated their activity on the one- and two-year bonds in November, this month focus has shifted to the medium-term five-year bond and infrastructure bonds, which are offering yields of up to 14.2 per cent.

Going into the final two weeks of trading, there could be downward pressure on turnover due to the reopening of the undersubscribed Sh30 billion nine-year infrastructure bond.

The rate on offer for the infrastructure bond is 14.795 per cent, at par with that of the highly traded five-year bonds.

The infrastructure bond is however tax free, meaning it could get preference among investors looking for medium-term investment options.

“The re-opening of the bond is not good for the secondary market, since investors who had taken positions in expectations to trade cannot do so and realise returns and that explains why the bond has so far not traded in the secondary market,” said Cytonn Investments in their latest market report.

READ: Treasury eyes Sh16bn from reopened bond sale

Going into 2016, liquidity to boost secondary bond trading could come from the higher number of maturities in the bonds market in the remaining part of the fiscal year.

The interest rates for both primary issues and secondary trades are expected to go up however due to the decision taken by the US Federal Reserve to increase its rate by 0.25 percentage points.